Question

please show all working and answer all questions

5. Monica Brighton, your aunt, left you the sum of $5,000 a year forever with payments starting next year in her will. However, the news is better. She has specified that the amount should grow at 5% per year to maintain purchasing power. Given an interest rate of 12%, what is the PV of the inheritance? 6. Right after graduating from Drake, Gracie Vasquez bought a Chevrolet Camaro Coupe 1SS, V8 6.2L, with 426 horsepower, at $31,000 with 10% down and financed the rest with a five-year loan at 6% APR, compounded monthly. What is her monthly payment if she starts the payment one month after the purchase? Also, construct a monthly amortization schedule for your loan for first three months. 7. Minnesota Yikes, a football team under a salary cap problem, has offered Payton Maddening, a free agent QB, a 5-year contract of $1 million dollars a year for the next season with the payments growing at 7% per year for the next 4 years with a signing bonus of $5 million. Another team, Kansas City Cheaps, offered a 5-year contract of $2 million dollars a year for the next season with the payments growing at 8% per year for the next 4 years with a signing bonus of $1.2 million. Payton believes the discount rate for such payments is 15%. Which contract should Payton choose?

Answer 1

5.

Compute the present value (PV) of inheritance, using the equation as shown below:

PV = Annual savings/ (Required rate – Growth rate)

      = $5,000/ (12% - 5%)

      = $71,428.5714285

Hence, the PV of inheritance is $71,428.5714285.