Question

you would like to retire 20 years from now and have an investment worth $3 million at that time. Currently, you have $200,000 in your account and plan to add $10,000 to that account each year. What annual rate of return must you earn on average to achieve your goal?

a) 10.42% b) 12.77% c) 12.86% d) 14.07% e) 12.25%

An investment is expected to produce cash flows of $1,000 at the end of each of the next 6 years, then an additional lump sum payment of $1,500 at the end of Year 6. What is the maximum price you are willing to pay for this investment now if your expected rate of return is 6%?

a) $5,324.89 b) $5,974.77 c) $5,591.45 d) $6,011.87 e) $4,854.13

The prize in last week’s Florida lottery was estimated to be worth $60 million. If you were lucky enough to win, the state will pay you $2 million per year over the next 30 years. Assume that the first installment is received immediately. If interest rates are 10%, what is the present value of the prize?

a) $20,739,212 b) $16,733,375 c) $17,368,413 d) $18,729,840 e) $19,969,488

Answer 1

The calculations for rate of return and present value is shown below

The workings for the present value and rate of return calculation is shown below