Question

Lloyd is a divorce attorney who practices law in Florida. He wants to join the American Divorce Lawyers Association (ADLA), a professional organization for divorce attorneys. The membership dues for the ADLA are $750 per year and must be paid at the beginning of each year. For instance, membership dues for the first year are paid today, and dues for the second year are payable one year from today. However, the ADLA also has an option for members to buy a lifetime membership today for $8,000 and never have to pay annual membership dues.

Obviously, the lifetime membership isn’t a good deal if you only remain a member for a couple of years, but if you remain a member for 40 years, it’s a great deal. Suppose that the appropriate annual interest rate is 7.9%. What is the minimum number of years that Lloyd must remain a member of the ADLA so that the lifetime membership is cheaper (on a present value basis) than paying $750 in annual membership dues? (Note: Round your answer up to the nearest year.)

1. 15 years
2. 17 years
3. 18 years
4. 20 years

In 1626, Dutchman Peter Minuit purchased Manhattan Island from a local Native American tribe. Historians estimate that the price he paid for the island was about $24 worth of goods, including beads, trinkets, cloth, kettles, and axe heads. Many people find it laughable that Manhattan Island would be sold for $24, but you need to consider the future value (FV) of that price in more current times. If the $24 purchase price could have been invested at a 4.25% annual interest rate, what is its value as of 2018 (392 years later)?

1. $248,569,086.68
2. $336,299,352.56
3. $292,434,219.62
4. $386,013,169.90

Answer 1

Lloyd can either pay 750 annual memebrship fee or can either pay a one time subsription fee of $8000 we need to calculate the number of years for which the present value of $750 payment is equal to $8000 Also the first payment is being made at the beginning of the year. Present value Periodic payment Interest rate 8,000.00 750 7.90% Number of period ? Use financial calculator to calculate the number of period Number of period = 19.97 So he needs to remain a member for atleast 20 years.

the formula used to calculate the future value as of 2018 would be Amount = principal*(1+interest rate) time period 24*(1+0.0425)^392 292,434,219.62 The correct answer is C