A long lost elderly relative has willed you (and your heirs after you are gone)
ID: 2638872 • Letter: A
Question
A long lost elderly relative has willed you (and your heirs after you are gone) to receive $20,000 a year forever in the future. If you are expected to receive the first of these payments 7 years from now, how much is tihs inheritance worth today, given aninterst rate of 3 percent?
You currently have $ in a savings account. You plan to contribute $2,500 to this account each year for 10 years, starting a year from today. How much will you have in the account 10 years from now, at an interst rate of 8 percent?
You borrow $15,000 as an interst only loan, at an interest rate of 6 percent, over 10 years. What is the total amount of interst you will pay on this loan over its life?
Explanation / Answer
1 7 years from now i.e at the end of 6 year or start of 7th year FV 20,000.00 DF 0.84 PV 16,749.69 2 CF received at the start of year Rate 8% FVF 2,500.00 1.00 10.00 2.16 5,397.31 2,500.00 2.00 9.00 2.00 4,997.51 2,500.00 3.00 8.00 1.85 4,627.33 2,500.00 4.00 7.00 1.71 4,284.56 2,500.00 5.00 6.00 1.59 3,967.19 2,500.00 6.00 5.00 1.47 3,673.32 2,500.00 7.00 4.00 1.36 3,401.22 2,500.00 8.00 3.00 1.26 3,149.28 2,500.00 9.00 2.00 1.17 2,916.00 2,500.00 10.00 1.00 1.08 2,700.00 Total value at end of year 10 39,113.72 3 I p*r*n/100 9000
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