After a protracted legal case, Joe won a settlement that willpay him $11,000 eac

Question

1. After a protracted legal case, Joe won a settlement that willpay him $11,000 each year at the end of the year for the next tenyears. If the market interest rates are currently 5%, exactly howmuch should the court invest today, assuming end of year payments,so there will be nothing left in the account after the finalpayment is made?
2. Mary just deposited $33,000 in an account paying 7% interest.She plans to leave the money in this account for eight years. Howmuch will she have in the account at the end of the seventhyear?
3. Mary and Joe would like to save up $10,000 by the end of threeyears from now to buy new furniture for their home. They currentlyhave $1500 in a savings account set aside for the furniture. Theywould like to make three equal year end deposits to this savingsaccount to pay for the furniture when they purchase it three yearsfrom now. Assuming that this account pays 6% interest, how muchshould the year end payments be?

Explanation / Answer

$11,000

10 years

5%

?

5%

10

-11,000

$138,356.82

$33,000.00

7%

8 years

7%

8

-33,000

$56,700.14

3 years

Each year annualpayment

$11,000

Number of years

10 years

Market Interest Rate

5%

Present Value of Today's Investment(PV)

?

Calculating Present Valueof Today's Investment (PV): (Using Ms-Excel "PV"Function): Interest Rate (Rate)

5%

Number of Years (Nper)

10

Each year Annual Payment(PMT)

-11,000

Present Value of Court'sToday's Investment (PV)

$138,356.82

Present Value of Mary's depositAmount (PV)

$33,000.00

Interest Rate (Rate)

7%

Number of Years

8 years

Calculating Future Valueof Deposit (FV) (Using Ms-Excel "FV"Function): Interest Rate (Rate)

7%

Number of Periods (Nper)

8

Present Value of Deposit Amount(PV)

-33,000

Future Value of Mary'sDeposit Amount (FV)

$56,700.14

Future Value of Savings Amount(FV) $10,000 Present Value of Savings Amount(PV) $1,500 Number of Years (Nper)

3 years

Interest Rate (Rate) 6% CalculatingEqual Year ended deposits Payment (PMT): (Using Ms-Excel "PMT"Function): Interest Rate (Rate) 6% Number of Periods (Nper) 3 Present Value of Savings Amount(PV) 1,500 Future Value of Savings Amount(FV) -10,000 Year ending DepositPayments (PMT) $2,579.93

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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