annual end of the year payments

Unit 4: Homework Assignments tart Assignment

Prompt: Answer the following questions.

  1. You decide to begin saving towards the purchase of a new car in 5 years. If you put $1,000 at the end of each of the next 5 years in a savings account paying 6% compounded annually, how much will you accumulate after 5 years?
  2. Homer promises Bart that he will give him $8,000 upon his graduation from college in 13 years at Springfield U. How much must Homer invest today to make good on his promise if Homer can earn 6% on his money?
  3. You estimate that you will have $56,500 in student loans by the time you graduate. The interest rate is 4.5 percent. If you want to have this debt paid in full within five years, how much must you pay each month?
  4. You buy an annuity that will pay you $24,000 at the beginning of each year for 25 years. What is the value of this annuity today if the discount rate is 8.5 percent?
  5. What is the future value of the lump sum of $4,900 today that is invested for 8 years at 7 percent compounded monthly?
  6. Sally has won the grand prize in a lottery and must choose between the following three options: (hint: find the PV of each option)

a. Receive a lump sum payment of $10,000,000.

b. Receive annual end of the year payments of $2,000,000 for the next 8 years.

c. Receive annual end of the year payments of $1,500,000 for the next 20 years.

Which option should Sally choose based on an annual investment rate of 6%?

  1. What is the future value of a $1000 annuity due over 12 years at an interest rate of 12%?
  2. If you invest $300 at the beginning of each month at an annual interest rate of 10%, how much will you have after 30 years?
  3. How much money do I need today to invest at 9% to have enough money to buy a house with cash worth $200,000 in 15 years?
  4. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take?
  5. Suppose Jennifer deposits $500 in an account at the end of this year, $400 at the end of the next year, and $300 at the end of the next 5 years. If she can earn 7.5 percent, how much will be in the account after her last deposit?

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