1. A money machines that will pay $2,000 per year for 20 year is worth $ ____ to
ID: 2821060 • Letter: 1
Question
1. A money machines that will pay $2,000 per year for 20 year is worth $ ____ today. Assume a 5% interest rate and that the first payment is made one year from today.
2. you will deposit $200 per year for 15 years into an account that earns 4%. the first deposit is made next year. How much will be in the account 15 years from today?
3. If you are willing to pay $1 800 today to receive $70 per year forever, then your required rate of return must be __%. Assume the first payment is recived one year from today.
Explanation / Answer
1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$2000[1-(1.05)^-20]/0.05
=$2000*12.46221034
which is equal to
=$24924.42(Approx).
2.Future value of annuity=Annuity[(1+rate)^time period-1]/rate
=$200[(1.04)^15-1]/0.04
=$200*20.02358764
which is equal to
=4004.72(Approx).
3.
Required rate of return=Annual inflows/Present value
=(70/1800)
which is equal to
=3.89%(Approx).
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.