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Chapter 6: Question 12BE (page 302)
Maria Alvarez is investing $300,000 in a fund that earns 4% interest compounded annually. What equal amounts can Maria withdraw at the end of each of the next 20 years?
Maria can withdraw $22,075 at the end of each of the next 20 years.
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(Analysis of Alternatives) Julia Baker died, leaving to her husband Brent an insurance policy contract that provides that the beneficiary (Brent) can choose any one of the following four options. (a) \(55,000 immediate cash. (b) \)4,000 every 3 months payable at the end of each quarter for 5 years. (c) \(18,000 immediate cash and \)1,800 every 3 months for 10 years, payable at the beginning of each 3-month period. (d) \(4,000 every 3 months for 3 years and \)1,500 each quarter for the following 25 quarters, all payments payable at the end of each quarter.
Instructions If money is worth 2陆% per quarter, compounded quarterly, which option would you recommend that Brent exercise?
Morgan Freeman is investing \(9,069 at the end of each year in a fund that earns 5% interest. In how many years will the fund be at \)100,000?
For each of the following cases, indicate (a) to what rate columns, and (b) to what number of periods you would refer in looking up the interest factor.
1. In a future value of 1 table Annual Number of Rate Years Invested Compounded
a. 9% 9 Annually b. 12% 5 Quarterly c. 10% 15 Semiannually
2. In a present value of an annuity of 1 table Annual Number of Number of Frequency of Rate Years Involved Rents Involved Rents
a. 9% 25 25 Annually b. 10% 15 30 Semiannually c. 12% 7 28 Quarterly
What would you pay for a \(100,000 debenture bond that matures in 15 years and pays \)5,000 a year in interest if you wanted to earn a yield of: (a) 4%? (b) 5%? (c) 6%?
Using the appropriate interest table, answer each of the following questions. (Each case is independent of the others.) (a) What is the future value of \(7,000 at the end of 5 periods at 8% compounded interest? (b) What is the present value of \)7,000 due 8 periods hence, discounted at 6%? (c) What is the future value of 15 periodic payments of \(7,000 each made at the end of each period and compounded at 10%? (d) What is the present value of \)7,000 to be received at the end of each of 20 periods, discounted at 5% compound interest?
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