1. Saving towards the purchase of a New car in 5 years. If u put $1000 at the en

Question

1. Saving towards the purchase of a New car in 5 years. If u put $1000 at the end of each of the next 5 years in a savings account paying 6% compounded annually, how much will be accumulate after 5 years.

2. A four year ordinary annuity that pays $10000 per year has interest rate of 6%. A. Calculate the future value of this ordinary annunity. B. Assuming this was an annuity due, calculate the future value of this annuity.

3. Car dealerships to determine the best interest rate on a new car loan.The dealership has quoted a 5- year, 10% loan in amount of $35000 that will require monthly payment. A. What is the monthly payment.

4. How much needed to have in retirement savings account today wishes to withdraw $25000 per year for years? What expects to earn an average rate of 8%.

5. What is the future value of $49000 invested for 8 years at 7 % compounded semiannually.

6. What is the present value of the following set of cash flows at a 10% discount rate?

Year 1 $600, year 2, -$600,year 3 $600 Year 4 -$600

7. What is the future value of the set of cash flows ( from the previous problem) 4 years from now? Assume an interest rate of 10%.

Explanation / Answer

q1) fv = =-FV(6%,5,1000,0,0) = 5,637.1 . (You can also calculate by summing 1000/((1+r)^) for n = 1 to 5

q2) fv = -FV(6%,4, 10000,0,0) = 43,746; part b: fv = -FV(6%,4, 10000,0,1) = 46,370.93

3) ssuming 10% as annual effective yeild, montly yeild = (1.1^(1/12))-1 = 0.7974%

total payments = 5*12 = 60

Montly Payment = pmt(0.7974%,60,-35000,0,0) = 736.25 [ if montly payments are made at the beigining then calculate using pmt(0.7974%,60,-35000,0,1)]

4) perpertuity = 25000, r = 8%

Saving = perpetuity /r = 312,500

5) FV = 49000*(1+3.5%)^16 = 84,965.316 [n = 16 as coumpounded semi annual and r = 7%/2 = 3.5%

6) PV = 600/(1.1)+ -600/(1.1^2) + 600/(1.1^3) - 600/1.1^4) = 90.568

7) FV = 90.568^1.1^4 = 132.6

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