Question

Please show works

P5-60 Number of years to provide a given return In each of the following cases, determine the number of years that the given ordinary annuity cash flows must continue to provide the desired rate of return given the cost of the annuity. Case Desired rate of return 11% 15 А B C Cost of annuity $ 1,000 150,000 80,000 600 17,000 Annuity payment $ 250 30,000 10,000 275 3,500 10 9 D E 6

Answer 1

Case А B Cost of Annuity Desired annuity payment ROR $1,000 $250 11% $150,000 $30,000 15% $80,000 $10,000 10% $600 $275 9% $17,000 $3,500 6% Number of years needed --> ROR stands for Rate of Return 5.56 EXCEL FORMULA USED: NPER(11,1000,-250,0,0)] 9.92 EXCEL FORMULA USED: NPER(15,150000,-30000,0,0)] 16.89 EXCEL FORMULA USED: NPER(10,80000,-10000,0,0)] 2.54 EXCEL FORMULA USED: NPER(9,600,-275,0,0)] 5.91 EXCEL FORMULA USED: NPER(6,17000,-3500,0,0)] C D E NOTE: For all cases A thru E, number of years required to reach the target is calculated using NPER() function in Ms-Excel with syntax of NPER(rate,pmt,pv,fv,type) where rate indicates periodic discount rate (= ROR); pmt =0 indicates hat annual ordinary annuity cash flow; pv indicates initial amount of deposit; fv indicates target maturity amount at the end; type indicates whether annuity is regular or due; That is, if type=0, it denotes that the annuity is normal; if type=1, it denotes that the the annuity is due each year.