Assume that you wish to have $1,000 on hand today and $1,000 on hand exactly two
ID: 2783074 • Letter: A
Question
Assume that you wish to have $1,000 on hand today and $1,000 on hand exactly two, four and five years from today. Assuming that you can always earn 6%, the amount that you must have now is $ Martin's Bakery is setting aside $421 to make five annual payments of $100 to a vendor. What interest rate is Martin's Bakery paying?. C% Suzanne's Dance Academy wants to make 10 annual payments to major vendors. Suzanne deposits $1,622 into a local financial institution so that the payments may be made from it. The current market interest rate is 4%, what is the amount of each pay mentExplanation / Answer
PV = FV/(1+r)^n
PV - Present value
FV - Future value
r - Interest rate
n - no. of periods
4.
PV = 1000 + 1000/(1+0.06)^2 + 1000/(1+0.06)^4 + 1000/(1+0.06)^5 = $3429.35
5.
PV of annuity = P*[(1-(1+r)^(-n)) / r]
P - Periodic payment
r - rate per period
n - number of periods
421 = 100*((1-(1+r)^(-5)) / r)
r = 6.02%
6.
1622 = P*((1-(1+0.04)^(-10)) / 0.04)
annual payment, P = 199.98
7.
519 = 150*((1-(1+0.06)^(-n)) / 0.06)
n = 3.99 = 4 payments