2) Stephanie Watson plans to make the following investments beginning next year.

Question

2) Stephanie Watson plans to make the following investments beginning next year. She will invest $2,570 in each of the next three years and will then make investments of $3,650, $3,725, $3,875, and $4,000 over the following four years. If the investments are expected to earn 5.6 percent annually, how much will Stephanie have at the end of the seven years? (Round answer to 2 decimal places, e.g. 15.25.)

3)Jeremy Fenloch borrowed some money from his friend and promised to repay him the amounts of $2,387, $1,766, $1,247, $2,144, and $1,284 over the next five years. If the friend normally discounts investment cash flows at 9.6 percent annually, how much did Jeremy borrow? (Round answer to 2 decimal places, e.g. 15.25)

4)

Carol Jenkins, a lottery winner, will receive the following payments over the next seven years. If she can invest her cash flows in a fund that will earn 10.4 percent annually, what is the present value of her winnings? (Round answer to 2 decimal places, e.g. 15.25.)

1

2

3

4

5

6

7

$381,304

$439,863

$281,874

$532,084

$259,594

$543,288

$575,514

1

2

3

4

5

6

7

$381,304

$439,863

$281,874

$532,084

$259,594

$543,288

$575,514

Explanation / Answer

2. Future value = 2570*((1+5.6%)^7+(1+5.6%)^6+(1+5.6%)^5)+3640*(1+5.6%)^4 + 3725*(1+5.6%)^3+3875*(1+5.6%)^2+4000*(1+5.6%)

= $28,160.16

So Stephanie will have $28,160.16 at end of 7 Yrs

3. Present value of loan = 2387/(1+9.6%)+1766/(1+9.6%)^2 + 1247/(1+9.6%)^3 + 2144/(1+9.6%)^4+1284/(1+9.6%)^5

= $6,893.08

4. PV of winnings = 381304/(1+10.4%)+439863/(1+10.4%)^2+281874/(1+10.4%)^3+532084/(1+10.4%)^4+259594/(1+10.4%)^5+543288/(1+10.4%)^6+575514/(1+10.4%)^7

= $2,020,216.45

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