Question

Use the following to answer questions 28 – 29 (round to nearest whole dollar)

The four actors below have just signed a contract to star in a comedy.  Each person signs independent contracts with the following terms:

	Contract amount	How contract is paid
Actor 1	$2,500,000	Lump sum in 4 years
Actor 2	2,650,000	Lump sum in 5 years
Actor 3	760,000	Every year for 3 years
Actor 4	590,000	Every year for 4 years

Assume an annual discount rate of 5%(compounded annually).

28.   $_________What is the value of the lowest value contract today (round to nearest dollar)?  

29.   $_________What is the value of the highest paid contract today (round to nearest dollar)?

30.   $_____________You would like to start saving for retirement. Assuming you are now 22 yearsold and you want to retire at age 60, you have 38 yearsto watch your investment grow.  You decide to invest in the stock market, which you expect it to earn about 6%per year into the future. You decide to invest $750at the end of each month for the next 38 years (456 months).  Calculate your accumulated investment at the end of 38years.  (Round to nearest whole dollar) If you do not have a financial calculator use the dynamic factor tables in Canvas (module 8—Factor Table, type in the interest rate and compounding periods in the blue highlighted portion of the factor table, it’ll calculate the factor you need).                                                                                                                                                                                                                                                                                                        

Answer 1

Actor 1 present value 2500000*pvf(8%,4)=2500000*.7350=1837500

Actor 2 2650000*pvf(8%,5)=2550000*.6806=1803590

Actor 3 760000*pvaf(8%,3)=1958594

Actor 4 590000*pvaf(8%,4)=1954155

Check the PV table and pv annuity table for the values

Lowest paid Contract as on today is actor 2

Highest paid is actor 3

Amount every month 750

No of months 456

Interest rate 6%

Accumulated investment=750*fvaf(.5%,456)=1308194

Calculation will be 750*(((1+.06/12)^456-1)/.0005