Problem 1: Paltrow Company made an investment in another that guarantees cash fl
ID: 2716009 • Letter: P
Question
Problem 1:
Paltrow Company made an investment in another that guarantees cash flow $ 22,500 each year for the next five years. If the company uses a discount rate of 15% on their investments, what is the present value of this investment?
Problem 2:
The company Argentinian Grill has a 7-year loan $ 23.500 with the local bank. His plan is to start paying the loan in seven equal installments starting today. If the interest rate
It is 8.4%, calculates the annuity payment.
Problem 3:
You currently have 25 and want to retire at the age of 65. As a complement to other sources of retirement, you could deposit $ 3,000 at the end of each year in an IRA. This financial instrument would earn 9.75% over the next 40 years.
a) How much money will accumulate at the end when you turn 65?
Problem 4:
Solve each situation separately, where P = principal; r = interest rate; t = time in years; I = interest and future value FV =
A) P = $ 10.800; r = 6.50%; t = 7 years; I =?
B) I = $ 1.550; t = 11 months r = 7.75%; P =?
C) P = $ 30.500; r = 6.75%; t = 10; VF =
D) FV = $ 320,000; r = 5.40% compounded monthly; t = 30; P =?
b) If you decide to wait 10 years to begin to deposit, how much money will accumulate to reach age 65?
c) Discuss the impact of waiting 10 years on the accumulated amount.
Problem 5:
You want to start a bakery business. For this, you will need a capital of $ 75,000 to start operating. If you have to operate within four years. What sum must now invest 12% quarterly composite, the amount needed to keep and operate your business?
** NOTE** IT IS VERY IMPORTANT TO COMPLETE THE ENTIRE EXERSICE. INCLUDE ALL THE CALCULATIONS, PLEASE, THANK
Explanation / Answer
Problem 1:
The returns are in the form of an annuity.
Hence, the Present Value of the Investment = 22500 * PVIFA 15,5 = 22500*3.352 = $ 75,420
Problem 2:
The problem is about amortizing the loan over the 7 year period:
The equated annual instalment for the 7 years A = 23,500/PVIFA8.4, 7
= 23500/5.11 =4,598.83
Problem 3:
The future value of the annuity would be 3000*FVIFA9.75, 40 = 3000*413.56 = $ 1,240,676
Problem 4:
Solve each situation separately, where P = principal; r = interest rate; t = time in years; I = interest and future value FV =
A) P = $ 10.800; r = 6.50%; t = 7 years; I = 10800(1.065)7 – 10800 = 16783.05 – 10800 = $5983.05
B) I = $ 1.550; t = 11 months r = 7.75%; P =?
C) P = $ 30.500; r = 6.75%; t = 10; FV = 30500 * (1.0675)10 = 30500*1.9217=$58610.94
D) FV = $ 320,000; r = 5.40% compounded monthly; t = 30; P = 320000/(1.0045)30= $237,098
b) If you decide to wait 10 years to begin to deposit, how much money will accumulate to reach age 65?
The accumulated amount will be less by $ 769976
Problem 5:
Here, the compounding is to be quarterly at 3%, no of periods becomes 4*4=16
Hence, 75000(CV) = PV*CVIF3,16 = PV*1.605 = PV=75000/1.605 = $ 46,728.97