(½ class point for each question) 1. Today Jim Byelow purchased an investment-gr
ID: 1121241 • Letter: #
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(½ class point for each question) 1. Today Jim Byelow purchased an investment-grade diamond for $50,000. He expects it to increase in value ata rate of 7% a year for the next ten/years. diamond to eventually be worth? How much is he expecting his 50,0t.o) on) 2. Sara Cellhigh wants to give her daughter $25,000 to start her own business when she graduates m business school in seven years with her M.B.A. How much should she invest today, given an expected annual rate of investment return of 10%, to achieve her goal? 3. In Januarylast year, Richard T. Gill loaned $25,000 to his son ("Little Richie ) at 12% interest in January, 2021. When his son repays the loan, how much should Richard receive 4. If you wish to withdraw $10,000 from a trust fund each year for the next ten years that earns 4% annually, how much must you have on deposit no I. 04 04) 5. Jodi Sgonnabe Rich expects to receive her inheritance of $500,000 in eight years. Assume that her opportunity cost on investments is 9% annually. What is Jodi's inheritance worth now?Explanation / Answer
(1)
Future worth ($) = 50,000 x (1.07)10 = 50,000 x 1.9672 = 98,360
(2)
Present investment ($) = 25,000 / (1.10)7 = 25,000 / 1.9487 = 12,829
(3) Question unclear. "Last year" refers to which year?
(4)
Present deposit ($) = 10,000 x PVIFA(4%, 10) = 10,000 x 8.1109 = 81,109
(5)
Present worth ($) = 500,000 / (1.09)8 = 500,000 / 1.9926 = 250,928
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