In: Accounting
a. How much would you have to deposit today if you wanted to have $51,000 in three years? The annual interest rate is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to the nearest whole dollar.) b. Assume that you are saving up for a trip around the world when you graduate in two years. If you can earn 6% on your investments, how much would you have to deposit today to have $13,500 when you graduate? (Round your answer to 2 decimal places.) c-1. Calculate the future value of an investment of $607 for nine years earning an interest of 10%. (Round your answer to 2 decimal places.) c-2. Would you rather have $607 now or $1,000 nine years from now? d. Assume that a college parking sticker today costs $74. If the cost of parking is increasing at the rate of 6% per year, how much will the college parking sticker cost in seven years? (Round your answer to 2 decimal places.) e. Assume that the average price of a new home is $119,000. If new homes are increasing at a rate of 10% per year, how much will a new home cost in seven years? (Round your answer to 2 decimal places.) f. An investment will pay you $8,500 in 10 years, and it will also pay you $270 at the end of each of the next 10 years (years 1 thru 10). If the annual interest rate is 6%, how much would you be willing to pay today for this type of investment? (Round your intermediate calculations and final answer to the nearest whole dollar.) g. A college student is reported in the newspaper as having won $9,000,000 in the Kansas State Lottery. However, as is often the custom with lotteries, she does not actually receive the entire $9.0 million now. Instead she will receive $450,000 at the end of the year for each of the next 20 years. If the annual interest rate is 7%, what is the present value (today’s amount’) that she won? (ignore taxes). (Round your answer to nearest whole dollar.)
a)
FUTURE VALUE=51000 DURATION 3 YEARS INTEREST RATE=10%
PRESENT VALUE=FUTURE VALUE * 1/(1+interest rate)^n
= 51000 * 1/(1+0.1)^3
= 51000 / 1.331 =38317. DEPOSIT NOW TO EARN 51000 AFTER 3 YEARS
b)
2 YEAR DURATION ,INTEREST RATE=6%
PRESENT VALUE = 13500/(1.06)^2
=13500/1.123
= 12015 DEPOSIT NOW TO EARN 13500 AFTER 2 YEARS
c)1
FUTURE VALUE 607 AFTER 9 YEARS INTEREST RATE =10%
FUTURE VALUE = PRESENT VALUE * (1+INTEREST RATE)^n
=607 * (1+0.10)^9
=607 * 2.36 = 1432.52
c)2
FUTURE VALUE OF 607 AFTER 9 YEARS= 607 *(1+1.06)^9
=607*1.69 =1025
WHICH IS GRATER THAN HAVING 1000 AFTER 9 YAERS
SO HAVING 607 NOW IS BETTER
d)
PRESENT PARKING FEE 74 AFTER 7 YAERS AT 6%
PARKING FEE AFTER 7 YEAR =74* (1+0.06)^7
=74 * 1.5 = 111
e)
AVG PRICE/CURRENT PRICE = 119000
PRICE INCREASING AT 10%
THERE FOR PRICE AFTER 7 YEARS= 119000 * (1+0.1)^7
=119000 * 1.95= 232050
f)
8500 + 270=8770 EACH YEAR FOR 10 YEARS, INTEREST RATE = 6%
THERE FOR PRESENT VALUE OF TOTAL AMOUNT = (TOTAL) SIGMA 1/(1.06)^10=7.36
THERE FOR WILLLING TO PAY = 8770 * 7.36 =64547.2
g)
450000 END OF EACH YEAR FOR 20 YEARS AT 7% INTEREST RATE
THERE FOR PRESENT VALUE OF THIS UNIFORM CASH FLOW IS
SIGMA PRESENE VALUE FOR 20 YEARS
=( TOTAL) SIGMA OF 1 /(1+0.07)^20
=10.6
THERE FOR PRESENT VALUE OF 450000 = 450000 * 10.6 =4770000
THANK YOU