1. Janis Company signed a lease for a rental unit for 15 years. Under the lease
ID: 2571275 • Letter: 1
Question
1. Janis Company signed a lease for a rental unit for 15 years. Under the lease agreement, a deposit of $6,000 is made. The deposit will be returned at the expiration of the lease with interest compounded at 4% per year. What amount will Jones Company receive at the time the lease expires?
2. Ross Gellar has an investment that pays him $35,000 every year for the next 20 years. However, he would like to sell his investment today to purchase a house. Assume the going market interest rate is 12%, how much would a wise investor be willing to pay for this investment?
3. Rachael Green wants to save up for a car which she will need when she graduates in 3 years. How much would she have to deposit today, if this amount would earn 10% per year, to have $23,000 when she graduates?
4. Joey and Phoebe decided to invest $2,000 every year for their daughter’s college fund until she is 18 (starting on her 1st birthday and including her 18th birthday). How much will be in the savings account on her 18th birthday (after the last deposit) assuming an interest rate of 8%?
5. ABC Enterprises issues $400,000 of bonds paying a stated interest rate of 7%. The bonds are due in 10 years, with interest payable annually each year on Jan. 1st. When the bonds are issued, other bonds of similar risk and maturity are paying 11% (i.e. the discount rate or market interest rate is 11%).
Calculate the issuance (selling) price of this bond:
Explanation / Answer
1)Value received =FVF4%,15*A
= 1.80094*6000
= $ 10805.64
**FVF =(1+.04)^15 =1.80094
2)Amount willing to pay =PVA12%,20*A
= 7.46944*35000
= $ 261430.4
PVA:=[1/(1.12)^1+1/(1+.12)^2+......1/(1.12)^20]
3)Amount to deposit today =Future value /FVF10%,3
= 23000/1.331
= $ 17280.24
4)Amount in saving account = A *FVA8%,18
= 2000*37.45024
= $ 74900.48
**FVA =[1+(1.08)^1+(1.08)^2+......+(1+.08)^17]
since it is end of deposit ,thats why n =17 is taken
5)price =[PVA11%,10*Interest]+[PVF11%,10*Face value]
= [5.88923*28000]+[.35218*400000]
= 164898.44+ 140872
=305770.44
*interest =400000*.07=28000
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