Question

4. Ben Collins plans to buy a house for $220,000. If the real estate in his area is expected to increase in value 2 percent each year, what will its approximate value be Page 25 seven years from now? (L012 ) 5. What would be the yearly earnings for a person with $8,000 in savings at an annual interest rate of 15 percent? (L013 ) 6. Using a financial calculator, Excel, or the time value of money tables in the chapter appendix . calculate the following: (LOI ) a. The future value of SS50 six years from now at 7 percent b. The future value of S700 saved each year for 10 years at percent c. The amount a person would have to deposit today (present value) at a 5 percent interest rate to have $1.000 five years from now d. The amount a person would have to deposit today to be able to take out S500 a year for 10 years from an account earning percent 7. If you desire to have S10.000 for a down payment for a house in five years, what amount would you need to deposit today Assume that your money will earn 4 percent (L01.30 8. Pete Morton is planning to go to graduate school in a program of study that will take three years, Pete wants to have $8.000 available each year for various school and living expenses. If he earns 3 percent on his money, how much must be deposit at the start of his studies to be able to withdraw $3.000 a year for three years LOL 9. Carla Lopez deposits 53.000 a year into her retirement account If these funds have average earnings of 7 percent over the 40 years until her retirement, what will be the value of her retirement account? (L01.39 10. If a person spends S10 a week on coffee (assume $500 a year, what would be the future value of that amount over 10 years if the funds were depouited in an account earning 3 percent? (L01.39 11. A financial company that advertites on television will pay you 500.000 now for annual payments of S10,000 that you are expected to receive for a legal settlement over the next 10 years. If you estimate the time value of monet at 10 percent would you becept the offert KL013 12

i need questions 4,5,6a,b,c,d,11

Answer 1

Answer 4)

Given

House is bought for amount = $ 220000
Increase in real estate per year = 2 %
Duration = 7 years

FV = PV x ( 1+r)^N  
FV = $ 220000 x ( 1+ 0.02)⁷
FV = $ 220000 x (1.02)⁷
FV = $ 220000 x 1.1487
FV = $ 252714

Answer 5)

Given

Savings = $ 8000
Annual interest rate = 1.5 %
Earnings = savings amount x annual rate of interest
Earnings = $ 8000 x 0.015
Earnings = $ 120

Answer 6)

a)

PV = $ 550
rate = 7 %
Number of years = 6
FV = $ 550 x (1+0.07)⁶
FV = $ 550 x 1.5
FV = $ 825

b)

Future value = $ 700 + $ 700 x (1.08)+ 700 x (1.08)²+ -------- + $ 700 x (1.08)⁸ + $ 700 x (1.08)⁹
FV = $ 700 + $ 756 + $ 816.48 + $ 881.8 + $ 952.34 + $ 1028.53 + 1110.81 + 1199.68 + $ 1295.65 + $ 1399.3
FV = $ 10140.59

c)

Given

FV = $ 1000
Number of year= 5
Interest rate = 5 %
PV = ?

FV = PV x ( 1+r )^N
$ 1000 = PV x (1.05)⁵
$ 1000 = PV x 1.2763
PV = $ 1000 / 1.2763
PV = 783.51

d)

Payments = $ 500
Number of years = 10
Interest rate = 8 %
FV = 0
PV =?

Using financial calculator
PV = $ 3355 (This should be amount deposited today)

Answer 11)

PV = $ 60000
Annual payments = $ 10000
Number of years = 10
Interest rate = 10 %

Present value of annual payments
PV = $ 10000 + $ 10000 / 1.10 + $ 10000 / 1.10² + 10000 / 1.10³ + ----- + 10000 / 1.10⁸ + 10000 / 1.10⁹
PV = $ 10000 + $ 9090.90 + $ 8264.46 + $ 7513.15 + $ 6830.13 + $ 6209.21 + $ 5644.74 + $ 5131.58 + $ 4665.07 + $ 4240.98

PV = $ 67590.22

Given the offer of $ 60000 is made instead of 10 payment of 10000 at 10 % interest which amounts to $ 67590.22 which is greater than one time settlement of $ 60000.

Therefore the offer should not be acceped.