Question

At age 25, Katharine starts to invest money into an Individual Retirement Account (IRA). If she decides to save $4000 every year and invest the amount into the IRA account at the end of each year for 30 years, how much will the account balance when she is 55 years old? Assume the IRA account generate 7.75% interest rate per year,

         A) 46,114.

         B) 120,000.

         C) 375,614

         D) 432,868.

         E) 462,114.

Assume that you win a lottery and have the following 2 options:

     (i) First, you can receive $100K at the end of each year during the next 3 years; or

     (ii) Second, you can receive a lump sum payment today.

     How much should be this lump sum payment today, which could make this two options are equal? Assume that interest rate is 5%.

1. $272K.
2. $279K.
3. $286K.
4. $300K.
5. $316K.

Assume that your broker offers you a great investment opportunity:

     The investment opportunity will offer you $12,000 at the beginningof every year for twenty years. The first $12000 payment would start today (t=0).

     Assume that your opportunity cost of capital is 6% (i.e., r = 6%), how much is the present value of all the cash flows from this investment opportunity?

1. $129,848.
2. $137,639.
3. $141,639.
4. $143,848.
5. $145,897.

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.