uoyd is a divorce attorney who practices law in Florida. He wants to join the Am

Question

uoyd is a divorce attorney who practices law in Florida. He wants to join the American Divarce Lawyers ssodaticon (ADLA), a professional organization for divorce attorneys. The membership dues for the ADLA are s must be paid at the beginning of each year. For instance, membership dues for the first year are paid today, and 5so per year and dues for the second year are buy a lifetime membership today for $5,000 and never have to pay annual membership dues. payable one year from today. However, the ADLA also has an option for members to Obviously, the lifetime membership Isn't a good deal If you only remain a member for a couple of years, butif you remain a member for 40 years, it's a great deal. Suppose that the appropriate annual interest rate is 7.5%. What is the minimum number of years that Uoyd must remain a member of the ADLA so that the lifetime membership is cheaper (on a present value basis) than paying $550 in annual membership dues? (Note: Round your answer up to the nearest year.) O 21 years O 12 years O 18 years O 14 years In 1626, Dutchman Peter Minuit purchased Manhattan Island from a local Native American tribe. Historians estimate that the price he paid for the island was about $24 worth of goods, including beads, trinkets, cdoth, kettles, and axe heads. Many people find it laughable that Manhattan Island would be sold for $24, but you need to consider the huture value (FV) of that price in more current times. If the $24 purchase price could have been invested at 4.25% annual interest rate, what is its value as of 2012 (386 years later)? O $193,638,065.25 O $300,708,524.86 O $261,980,911.81 O $227,809,488.53

Explanation / Answer

Note: Solutions are done using financial calculator

a) Set your calculator to BGN mode (assuming you have BA II Plus, steps are as given below)

--> 2nd

--> PMT

---> 2nd

--> ENTER

--> CE|C

Now your calculator is set to BGN mode and can easily calculate the PV of annuity due.

To calculate the minimum no. of years that lloyd must remain a member of the association so tat lifetime membership is cheaper is calculated below:

PMT --> 550

I/Y --> 7.5

PV --> -5000

CPT --> N

Answer: Minimum number of years is 14 years (approx) [option 4]

b) Future Value = Present value X [(1 + r)^n]

Financial Calculator strokes are:

PV --> 24

I/Y --> 4.25

N --> 386

CPT -> FV

Answer: $227809488.53 [option4]

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