1.Assume that you contribute $120 per month to a retirement plan for 20 years. T
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1.Assume that you contribute $120 per month to a retirement plan for 20 years. Then you are able to increase the contribution to $220 per month for another 20 years. Given a 7.0 percent interest rate, what is the value of your retirement plan after 40 years? 2.Payday loans are very short-term loans that charge very high interest rates. You can borrow $1,100 today and repay $1,287 in two weeks. What is the compound annual rate implied by this 17 percent rate charged for only two weeks? 3.You are scheduled to receive a $400 cash flow in one year, a $700 cash flow in two years, and pay a $300 payment in three years. If interest rates are 10 percent per year, what is the combined present value of these cash flows? 4. What is the value in year 7 of a $1,200 cash flow made in year 11 when interest rates are 10.3 percent? 5. Consider a $2,300 deposit earning 9 percent interest per year for 8 years. How much total interest is earned on the original deposit (excluding interest earned on interest)?Explanation / Answer
1.Assume that you contribute $120 per month to a retirement plan for 20 years. Then you are able to increase the contribution to $220 per month for another 20 years. Given a 7.0 percent interest rate, what is the value of your retirement plan after 40 years? So it is Like monthly deposit of $120 for 20+20 = 40 Yrs & a deposi of 220-120=100 for 20 Yrs starting after 20 Yrs. WSe have PMT = 120, t1=nper1=40Yr*12month = 480 period, Rate=7%pa = 7%/12 pm SO Value after 40 Yrs = FV(Rate,nper,PMT,PV) = FV(7%/12,480,-120,0) ie FV = $314,978 Also we have PMT = (220-120)=100, t2=nper2=20Yr*12month = 240 period, Rate=7%pa = 7%/12 pm SO Value after 20 Yrs = FV(Rate,nper,PMT,PV) = FV(7%/12,240,-120,0) ie FV = $62,511 So Total AMt after 40 Yrs = $$314,978+ 62,511 = $377,489 2.Payday loans are very short-term loans that charge very high interest rates. You can borrow $1,100 today and repay $1,287 in two weeks. What is the compound annual rate implied by this 17 percent rate charged for only two weeks? We have weekly Rate = Rate(nper,PMT,PV,FV) = Rate(2,0,-1100,1287) = 8.17% SO annual rate = 52*8.17% = 424.66% 3.You are scheduled to receive a $400 cash flow in one year, a $700 cash flow in two years, and pay a $300 payment in three years. If interest rates are 10 percent per year, what is the combined present value of these cash flows? PV of CF = 400/(1+10%)^1 + 700/(1+10%)^2 - 300/(1+10%)^3 = $717 4. What is the value in year 7 of a $1,200 cash flow made in year 11 when interest rates are 10.3 percent? So Period = 11-7 = 4yrs. So PV of CF ay Y7 = FV/(1+r)^4 = 1200/(1+10.3%)^4 = $811 5. Consider a $2,300 deposit earning 9 percent interest per year for 8 years. How much total interest is earned on the original deposit (excluding interest earned on interest)? This is SImple Int for 8 Yrs at 9% on $2300 So Simple Int = PRN = 2300*9%*8 = $1,656
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