Scribd Logo
Upload

Welcome to Scribd!

  • 320 views

    Business Finance Time Value of Money Assignment 2 Solve Following Problems

    Uploaded by

    Alex Asher
    Muffin Megabucks is considering two savings plans with different interest rates and deposit schedules. Plan 1 deposits $500 every 6 months at 7% interest compounded semiannually. Plan 2 deposits $1,000 annually at 7.5% interest compounded annually. The problem asks to calculate the future values of each plan after 10 years and determine the better plan. Selyn Cohen wants to purchase an annuity from Philo Life Insurance to provide $10,000 annual retirement income. The problem calculates the purchase prices for annuities providing that income using 5% and 10% interest rates, based on Cohen's 15-year life expectancy. A man saved pennies for 65 years, accumulating

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Business Finance Time Value of Money Assignment 2 Solve Following Problems

    Uploaded by

    Alex Asher
    320 views2 pages
    Muffin Megabucks is considering two savings plans with different interest rates and deposit schedules. Plan 1 deposits $500 every 6 months at 7% interest compounded semiannually. Plan 2 deposits $1,000 annually at 7.5% interest compounded annually. The problem asks to calculate the future values of each plan after 10 years and determine the better plan. Selyn Cohen wants to purchase an annuity from Philo Life Insurance to provide $10,000 annual retirement income. The problem calculates the purchase prices for annuities providing that income using 5% and 10% interest rates, based on Cohen's 15-year life expectancy. A man saved pennies for 65 years, accumulating

    Original Title

    BF assign#2

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Muffin Megabucks is considering two savings plans with different interest rates and deposit schedules. Plan 1 deposits $500 every 6 months at 7% interest compounded semiannually. Plan 2 deposits $1,000 annually at 7.5% interest compounded annually. The problem asks to calculate the future values of each plan after 10 years and determine the better plan. Selyn Cohen wants to purchase an annuity from Philo Life Insurance to provide $10,000 annual retirement income. The problem calculates the purchase prices for annuities providing that income using 5% and 10% interest rates, based on Cohen's 15-year life expectancy. A man saved pennies for 65 years, accumulating

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    320 views2 pages

    Business Finance Time Value of Money Assignment 2 Solve Following Problems

    Uploaded by

    Alex Asher
    Muffin Megabucks is considering two savings plans with different interest rates and deposit schedules. Plan 1 deposits $500 every 6 months at 7% interest compounded semiannually. Plan 2 deposits $1,000 annually at 7.5% interest compounded annually. The problem asks to calculate the future values of each plan after 10 years and determine the better plan. Selyn Cohen wants to purchase an annuity from Philo Life Insurance to provide $10,000 annual retirement income. The problem calculates the purchase prices for annuities providing that income using 5% and 10% interest rates, based on Cohen's 15-year life expectancy. A man saved pennies for 65 years, accumulating

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 2

    Business Finance

    Time Value of Money


    Assignment 2
    Solve following problems
    Problem 1
    Muffin Megabucks is considering two different savings plans. The first plan would have her
    deposit $500 every six months, and she would receive interest at a 7 percent annual rate,
    compounded semiannually. Under the second plan she would deposit $1,000 every year with a
    rate of interest of 7.5 percent, compounded annually. The initial deposit with Plan 1 would be
    made six months from now and, with Plan 2, one year hence.
    a. What is the future (terminal) value of the first plan at the end of 10 years?
    b. What is the future (terminal) value of the second plan at the end of 10 years?
    c. Which plan should Muffin use, assuming that her only concern is with the value of her
    savings at the end of 10 years?
    d. Would your answer change if the rate of interest on the second plan were 7 percent?

    Problem 2
    Selyn Cohen is 63 years old and recently retired. He wishes to provide retirement income for
    himself and is considering an annuity contract with the Philo Life Insurance Company. Such a
    contract pays him an equal-dollar amount each year that he lives. For this cash-flow stream, he
    must put up a specific amount of money at the beginning. According to actuary tables, his life
    expectancy is 15 years, and that is the duration on which the insurance company bases its
    calculations regardless of how long he actually lives.
    a. If Philo Life uses a compound annual interest rate of 5 percent in its calculations, what must
    Cohen pay at the outset for an annuity to provide him with $10,000 per year? (Assume that the
    expected annual payments are at the end of each of the 15 years.)
    b. What would be the purchase price if the compound annual interest rate is 10 percent?
    c. Cohen had $30,000 to put into an annuity. How much would he receive each year if the
    insurance company uses a 5 percent compound annual interest rate in its calculations?

    Problem 3
    A Dillonvale, Ohio, man saved pennies for 65 years. When he finally decided to cash them in, he
    had roughly 8 million of them (or $80,000 worth), filling 40 trash cans. On average, the man
    saved $1,230 worth of pennies a year. If he had deposited the pennies saved each year, at each
    year’s end, into a savings account earning 5 percent compound annual interest, how much would
    he have had in this account after 65 years of saving? How much more “cents” (sense) would this
    have meant for our “penny saver” compared with simply putting his pennies into trash cans?

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy