Question

PLEASE SHOW WORK:

1- You love travelling and have decided to join the 7 continent travel club. Over the course of the next 7 years, you will go on a guided tour on each of the seven continents. The cost for the trip the first year is $12,000 and is payable today. After that, the trip costs will increase 3% per year for the 6 remaining years. The club gives three options for payment.
Assuming a 5% interest rate, which option would you choose?
A) Seven (7) annual payments beginning with the $12,000 payment today. The payments will increase 3% per year.
B) One payment of $78,000 today and no additional payments for the remaining 7 years.
C) One payment of $108,500 7 years from today.

2- You plan to take a year off to hike the Appalachian Trail. You believe that it will cost $4,500 to buy gear and food for the trip. You have $4,000 in your savings account and the
bank pays an interest rate of 4% APR compounded quarterly. you have enough money for your trip?
A) Less than one year
B) Between 1 and 2 years
C) Between 2 and 3 years
D) Between 3 and 4 years

3- You receive $8,000 every six months beginning six months from today for 10 years and an additional $2,500 10 years from today. If the interest rate is 3.0% (EAR), which of the following is closest to the present value (PV) of this stream of cash flows?
A) $137,499
B) $139,360
C) $144,148 D) $146,191

Answer 1

	Answer 1
	option a
	if payment made from today
Starting of year		P.V Factor @5%
1	12000.00	1.0000	12000
2	12360.00	0.9524	11771.42
3	12730.80	0.9070	11547.22
4	13112.72	0.8638	11327.3
5	13506.11	0.8227	11111.47
6	13911.29	0.7835	10899.91
7	14328.63	0.7462	10692.31
			79349.62
	option b
	Single Payment of 78000
	option c
Payment made after completing 7 years
	payment	PV factor after 7 years
	108000	0.71068	76753.44
	Option C is better
Answer 2
current amount		4000
4% compounded quaterly
amount after 1 quarter		4160
amount after 2nd quarter		4326.4
amount after 3rd quarter		4499.456
		so the answer is less than 1 year
	Option A is correct
Answer 3						amount received
PVAf of 3% Compounded semianually for 10 years					17.168	8000	137344
PV factor of 3% after 10 years					0.744	2500	1860
							139204
		Option B is most nearest cash flow