PLEASE SHOW WORK: 1- You love travelling and have decided to join the 7 continen

Question

PLEASE SHOW WORK:

1- You love travelling and have decided to join the 7 continent travel club. Over the course of the next 7 years, you will go on a guided tour on each of the seven continents. The cost for the trip the first year is $12,000 and is payable today. After that, the trip costs will increase 3% per year for the 6 remaining years. The club gives three options for payment.
Assuming a 5% interest rate, which option would you choose?
A) Seven (7) annual payments beginning with the $12,000 payment today. The payments will increase 3% per year.
B) One payment of $78,000 today and no additional payments for the remaining 7 years.
C) One payment of $108,500 7 years from today.

2- You plan to take a year off to hike the Appalachian Trail. You believe that it will cost $4,500 to buy gear and food for the trip. You have $4,000 in your savings account and the
bank pays an interest rate of 4% APR compounded quarterly. you have enough money for your trip?
A) Less than one year
B) Between 1 and 2 years
C) Between 2 and 3 years
D) Between 3 and 4 years

3- You receive $8,000 every six months beginning six months from today for 10 years and an additional $2,500 10 years from today. If the interest rate is 3.0% (EAR), which of the following is closest to the present value (PV) of this stream of cash flows?
A) $137,499
B) $139,360
C) $144,148 D) $146,191

Explanation / Answer

Answer 1 option a if payment made from today Starting of year P.V Factor @5% 1 12000.00 1.0000 12000 2 12360.00 0.9524 11771.42 3 12730.80 0.9070 11547.22 4 13112.72 0.8638 11327.3 5 13506.11 0.8227 11111.47 6 13911.29 0.7835 10899.91 7 14328.63 0.7462 10692.31 79349.62 option b Single Payment of 78000 option c Payment made after completing 7 years payment PV factor after 7 years 108000 0.71068 76753.44 Option C is better Answer 2 current amount 4000 4% compounded quaterly amount after 1 quarter 4160 amount after 2nd quarter 4326.4 amount after 3rd quarter 4499.456 so the answer is less than 1 year Option A is correct Answer 3 amount received PVAf of 3% Compounded semianually for 10 years 17.168 8000 137344 PV factor of 3% after 10 years 0.744 2500 1860 139204 Option B is most nearest cash flow

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