Del Monty will receive the following payments at the end of the next three years

Question

Del Monty will receive the following payments at the end of the next three years: $18,000, $21,000, and $23,000. Then, from the end of the 4th through the end of the 10th year, he will receive an annuity of $24,000 per year.

At a discount rate of 10 percent, what is the present value of all three future benefits? Use Appendix B andAppendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

  Present value of all future benefits

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You need $25,056 at the end of 6 years, and your only investment outlet is an 12 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. Use Appendix B and Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

What single payment could be made at the beginning of the first year to achieve this objective? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

What amount could you pay at the end of each year annually for 6 years to achieve this same objective?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

$   

Del Monty will receive the following payments at the end of the next three years: $18,000, $21,000, and $23,000. Then, from the end of the 4th through the end of the 10th year, he will receive an annuity of $24,000 per year.

Explanation / Answer

Present Value of all the future benefits@ 10%= Present Value of the 1st 3 payments+Current PV (of The PV from end of 4th-10 yrs.) Present Value of the 1st 3 payments= 18000/1.1^1+21000/1.1^2+23000/1.1^3= 50999.25 Current PV (of The PV from end of 4th-10 yrs.)= 24000*((1-(1.1)^-7)/0.1) Current PV of 116842.05 = 116842.05/1.1^3 87785.16 Present Value of all the future benefits@ 10%= 138784.41 Single payment to be made at the beginning of 1st year -till end of 6 yrs. (compounded 6 time periods @ 12%)to achieve this objective   = PV+(PV*(1+0.12)^5=25056 = 9070.57 Amount paid at the end of each year annually for 6 years to achieve this same objective is an ordinary annuity where PMT @ 12 % for 6 periods = 25056=(PMT*(1-(1+0.12)^-6)/0.12) 6094.26

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