A local magazine is offering a $2,500 grand prize to one lucky winner. The prize

Question

A local magazine is offering a $2,500 grand prize to one lucky winner. The prize will be paid in four annual payments of $625 each, starting one year after the drawing. How much would this prize be worth to you if you can earn 9 percent on your money?

A. $1,848.18

B. $2,024.82

C. $2,545.54

D. $2,450.14

E. $1,934.24

You have been told that you need $25,600 today in order to have $100,000 when you retire 35 years from now. What rate of interest was used in the present value computation? Assume interest is compounded annually.

A. 4.15 percent

B. 3.97 percent

C. 4.53 percent

D. 4.58 percent

Explanation / Answer

B. $2,024.82

PV of annuity = (C/r)*(1-(1+r)^-n)

C = $625 , r = 0.09 , n = 4

PV = (625/0.09)*(1-1.09^-4) = $2024.82

B. 3.97 percent

FV = PV*(1+r)^n

FV = $100000 , PV = $25600 , n =35 , r = r

100000 = 25600*(1+r)^35

3.90625 = (1+r)^35

r = 3.90625^(1/35) - 1 = 0.0397 = 3.97%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.