Jim works for a bank and he is planning to retire at the age of 65 years. He is

Question

Jim works for a bank and he is planning to retire at the age of 65 years. He is expecting to receive an annual payment of $15000 for 15 years after retirement. He is presently 45 years. He expects to have the payment every beginning of the year. He will receive aa heritance from his father amounting to $15000.The discount rate is 6%. Required How much money should he need in order to get the annual payment when he is 60 years old? How much money should he deposit to-day in order to get this payment An entrepreneur is planning to invest in a business. His investment adviser has worked on the project and has told him the cash flow he should expect from this project, the information is given on the table below The discount rate is 8% REQUIRED How much should he invest in order to make a loss of $7500?

Explanation / Answer

2 question

To make a loss of $7500

equation should be

$2500 would be invested for 5 years. So, present value of all his cashflows would be

2500/(1.08)^5 + 1800/(1.08)^4 + 1250/(1.08)^3 + 2500/(1.08)^2 + 2000/(1.08)^1 = $8012 approx

So, to make a loss of $7500, he should invest

$8012 + $7500 = $15512

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