1) Investment X offers to pay you $5,800 per year for eight years, whereas Inves
ID: 2806622 • Letter: 1
Question
1) Investment X offers to pay you $5,800 per year for eight years, whereas Investment Y offers to pay you $7,900 per year for five years.
Calculate the present value for Investment X and Y if the discount rate is 5 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
Calculate the present value for Investment X and Y if the discount rate is 15 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
2) Beginning three months from now, you want to be able to withdraw $3,500 each quarter from your bank account to cover college expenses over the next five years. If the account pays 0.57 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next five years?
3) You have 32 years left until retirement and want to retire with $3.3 million. Your salary is paid annually, and you will receive $46,000 at the end of the current year. Your salary will increase at 2.1 percent per year, and you can earn a 15.1 percent return on the money you invest. If you save a constant percentage of your salary, what percentage of your salary must you save each year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Calculate the present value for Investment X and Y if the discount rate is 5 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Note: All given questions are separate & independent. So as per rule I am answering first question including its both parts.
(1). When discount rate is 5%;
Investment X
$37486.63
Investment Y
$34202.87
Explanation & Working Note;
Investment X
Year
Cash inflows
Discounting factors @ 5%
Present value
1
$5800
1.05
$5523.81
2
$5800
(1.05)2
$5260.77
3
$5800
(1.05)3
$5010.26
4
$5800
(1.05)4
$4771.67
5
$5800
(1.05)5
$4544.45
6
$5800
(1.05)6
$4328.05
7
$5800
(1.05)7
$4121.95
8
$5800
(1.05)8
$3925.67
Total present value
$37486.63
Investment Y
Year
Cash inflows
Discounting factors @ 5%
Present value
1
$7900
1.05
$7523.81
2
$7900
(1.05)2
$7165.53
3
$7900
(1.05)3
$6824.32
4
$7900
(1.05)4
$6499.35
5
$7900
(1.05)5
$6189.86
Total present value
$34202.87
(2). When discount rate is 15%;
Investment X
$26026.45
Investment Y
$26482.02
Explanation & Working Note;
Investment X
Year
Cash inflows
Discounting factors @ 15%
Present value
1
$5800
1.15
$5043.48
2
$5800
(1.15)2
$4385.63
3
$5800
(1.15)3
$3813.59
4
$5800
(1.15)4
$3316.17
5
$5800
(1.15)5
$2883.62
6
$5800
(1.15)6
$2507.50
7
$5800
(1.15)7
$2180.43
8
$5800
(1.15)8
$1896.03
Total present value
$26026.45
Investment Y
Year
Cash inflows
Discounting factors @ 15%
Present value
1
$7900
1.15
$6869.56
2
$7900
(1.15)2
$5973.53
3
$7900
(1.15)3
$5194.38
4
$7900
(1.15)4
$4516.85
5
$7900
(1.15)5
$3927.70
Total present value
$26482.02
Investment X
$37486.63
Investment Y
$34202.87
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