40) Jones Stoneware has a liability of $75,000 due four years from today. The co

Question

40) Jones Stoneware has a liability of $75,000 due four years from today. The company is planning to make an initial deposit today into a savings account and then deposit an additional $10,000 at the end of each of the next four years. The account pays interest of 4.5 percent. How much does the firm need to deposit today for its savings to be sufficient to pay this debt?

40)

A) $19,469.64 B) $27,016.84 C)$22,218.09 D) $21,400.33 E) $28,299.95

41) You have been purchasing $12,000 worth of stock annually for the past eight years and now have a portfolio valued at $87,881. What is your annual rate of return?

41)

A) í 2.54 percent B) 3.29 percent C)í 4.32 percent D) 4.32 percent E) 2.54 percent

Explanation / Answer

Answer to Question 40:

Desired Sum after 4 years = $75,000
Annual Deposit = $10,000
Interest Rate = 4.50%

Initial Deposit * FVIF(4.50%, 4) + $10,000 * FVIFA(4.50%, 4) = $75,000
Initial Deposit * 1.045^4 + $10,000 * (1.045^4 - 1) / 0.045 = $75,000
Initial Deposit * 1.1925 + $42,781.91 = $75,000
Initial Deposit * 1.1925 = $32,218.09
Initial Deposit = $27,016.84

Answer to Question 41:

Annual payment = $12,000
Future Value = $87,881
Period = 8 years

Let annual rate of return be i%

$12,000 * FVIFA(i%, 8) = $87,881

Using financial calculator:
N = 8
PV = 0
PMT = -12000
FV = 87881

I = -2.54%

So, annual rate of return is -2.54%

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