Question

In: Finance

as part of your retirement package, your company has agreed to pay you monthly payments over...

as part of your retirement package, your company has agreed to pay you monthly payments over the next three years that have the following characteristics.

  1. you will receive 12 monthly payments each year, with the first payment for the year being made on January 1st, and the last payment for the year being made on December 1st
  2. monthly payments for the first year will be $4,000 per month.
  3. after year 1, you will receive an annual cost of living adjustment (COLA) of 10 percent that will be effective as of the January 1st payment for each subsequent year. That is, in Year 2, your monthly payment will be 1.0 percent higher than in Year 1 (i.e. $4,000*1.01=$4.040), and in Year 3, it will be 1.0 percent higher than in Year 2.
  4. you believe that interest rates will increase in the future and that you will be able to deposit your payments into an investment account and receive the following effective annual rates of return (over the 12 months fro January 1st to December 31st of each year): Years 1 and 2 = 6.6759627%, Year 3(and after)= 8.2139158%

Given this information, determine how much you should expect to have in your investment account one month after your 36th deposit, on December 31st of Year 3.

Answer is whole dollars, rounded to the nearest dollar, with no punctuation. For example, if your answer is $150,224.75, enter “150225

Solutions

Expert Solution

Answer:

Effective annual rates of return (over the 12 months fro January 1st to December 31st of each year): Years 1 and 2 = 6.6759627%

Monthly Interest rate = (1 + 6.6759627%) 1/12 - 1 = 0.0054

Effective annual rates of return (over the 12 months fro January 1st to December 31st of each year): Year 3(and after)= 8.2139158%

Monthly Interest rate = (1 + 8.2139158%) 1/12 - 1 = 0.0066

Year 1:

Monthly payments for the first year will be $4,000 per month paid on start of each month

Amount at end of year 1:

FV (rate, nper, pmt, pv, type)

= FV (0.0054, 12, -4000, 0, 1)

=49718.613796

Year 2:

Monthly deposit in year 2 = 4000 *(1 + 1%) = $4,040

Amount at end of year 2:

= FV (0.0054, 12, -4040, -49718.613796, 1)

=103253.6098

Year 3:

Monthly deposit in year 3 = 4040 *(1 + 1%) = $4,080.4

Amount at end of year 3:

= FV (0.0066, 12, -4080.40, -103253.6098, 1)

=162851.84

=162852

Amount you should expect to have in your investment account on December 31st of Year 3 = 162852


Related Solutions

You have agreed to pay off an $8,000 loan in 30 monthly payments of $298.79 per...
You have agreed to pay off an $8,000 loan in 30 monthly payments of $298.79 per month. The annual interest rate is 9% on the unpaid balance. (a) How much of the first month’s payment will apply towards reducing the principal of $8,000? (b) What is the unpaid balance (on the principal) after 12 monthly payments have been made?
Q.5 You have borrowed $24,000 and agreed to pay back the loan with monthly payments of...
Q.5 You have borrowed $24,000 and agreed to pay back the loan with monthly payments of $200. If the interest rate is 12%,how long will it take you to pay back the loan?
The Grewals agreed to monthly payments on a mortgage of $363,000.00 amortized over 25 years. Interest...
The Grewals agreed to monthly payments on a mortgage of $363,000.00 amortized over 25 years. Interest for the first five years was 4.3% compounded semi-annually. a. Determine the Grewals’ monthly payments. b. Determine the balance owing after the 5-year term. c. Before renewing for another term of 5 years at 4.5% compounded semiannually, the Grewals make an additional payment of $21,000. If they keep the same monthly payments, by how much will the amortization period be shortened? note; sir i...
The Grewals agreed to monthly payments on a mortgage of $336,000.00 amortized over 20 years. Interest...
The Grewals agreed to monthly payments on a mortgage of $336,000.00 amortized over 20 years. Interest for the first five years was 4.5% compounded semi-annually. a. Determine the Grewals’ monthly payments. b. Determine the balance owing after the 5-year term. c. Before renewing for another term of 5 years at 4.3% compounded semiannually, the Grewals make an additional payment of $12,000. If they keep the same monthly payments, by how much will the amortization period be shortened?
Trena has agreed to pay Jayme the following payments: 30,000 at the end of 2 years;...
Trena has agreed to pay Jayme the following payments: 30,000 at the end of 2 years; 50,000 at the end of 5 years; and 10,000 at the end of 8 years. You are given that v=0.9. Calculate the Modified duration of Trena's liability.
You take out a loan for 10000. You pay off the loan with monthly payments of...
You take out a loan for 10000. You pay off the loan with monthly payments of 90 for 10 years. (a) What is the monthly effective rate? What is the annual effective rate? (b) What is the outstanding loan balance immediately after the 7th payment? Calculate using both the retrospective and prospective formulas. (c) Assume you miss the 13th and 53rd payments, what will be the outstanding loan balance after the 71st payment? actuarial science
You obtain a loan of $150,000 at 5.875% amortized over 30 years with monthly payments. You...
You obtain a loan of $150,000 at 5.875% amortized over 30 years with monthly payments. You are required to pay closing costs and fees of 2% of the loan amount to the lender. What is the yield of the loan if paid off at the end of 5 years?
What price will a finance company pay for a conditional sale contract requiring 21 monthly payments...
What price will a finance company pay for a conditional sale contract requiring 21 monthly payments of $210.50, if the company requires a rate of return of 20% compounded semiannually? The first payment is due one month from now.
You obtain a loan of $300,000 at 5.75% amortized over thirty years with monthly payments.
Can you please help me the steps of this Finance Math problem?You obtain a loan of $300,000 at 5.75% amortized over thirty years with monthly payments. You are required to pay closing costs and fees of 1.0% of the loan amount to the lender. What is the yield of the loan if paid off at maturity?
You obtain a loan of $150,000 at 5.875% amortized over thirty years with monthly payments.
You obtain a loan of $150,000 at 5.875% amortized over thirty years with monthly payments. You are required to pay closing costs and fees of 2.0% of the loan amount to the lender. What is the yield of the loan if paid off at the end of 5 years? 
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT