Question

7) True or False: In the context of the modern corporation, Restatement is the revision and publication of one or more of a company's previous financial statements. 15) Your father is about to retire, and he wants to buy an investment that will provide him with $100,000 of income per year for 20 years, beginning a year from today. In addition, on the 20th anniversary (when the last payment of $100,000 occurs), he wants to withdraw a lump-sum of $250,000 (in addition to the last receipt of $100,000). The going rate on such annuities is 1.0%. How much would it cost him to buy such an annuity today (in $'000s)? a. $1,059 b. $1,447 c. $1,805 d. $2,009 e. $3,487

Answer 1

7. TRUE. A restatement is a revision and publication of one or more of a company's previous financial statements to correct an error.

8. Calculating the Cost to buy that annuity today using following formula:

1 - (1+r)-n] PresentValue = C* +- LumpSum Money (1 + r)

Where, C= Periodic Payments = $100,000

r = Periodic Interest rate = 0.01

n= no of periods = 20 years

Lump Sum Money = $250,000

PresentValue = 100,000 * [1 -(1 +0.01) -20 0.01 + 250,000 (1 + 0.01)20

PresentValue = 100,000 * 1 – 0.81954447 0.01 250,000 1.22019004

PresentValue = 1804555.3 + 204886.12

Present Value = $2009,441.42

So, Ans is Option D. $2009 (in 000's)

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