Question
In: Accounting
Your rich aunt offers you the choice of 3 pay-outs today Choice 1 : $1000 paid...
Your rich aunt offers you the choice of 3 pay-outs today
Choice 1 : $1000 paid every year for 5 years, with the first payment to be received at the end of year 3
Choice 2 : $300 paid today
Choice 3 : $80 paid at the end of each month for 5 years, with the first payment to be received in a month
(a) What is the effective annual interest rate would make you indifferent between choice 2 and choice 3?
(b) If you were to receive the monthly payment of at the beginning of each month for 5 years, what monthly payment would make you indifferent to receiving $3000 today? Use a 10% p.a. interest rate.
(c) Calculate the PV of 3 choices and select the best choice among the 3 alternatives, use a 10% p.a. interest rate.
Solutions
ekkarill92 answered 1 year agoRelated Solutions
A rich aunt has promised you $ 4000 one year from today. In addition, each year...
A rich aunt has promised you $ 4000 one year from today. In
addition, each year after that, she has promised you a payment
(on the anniversary of the last payment) that is 4 % larger than
the last payment. She will continue to show this generosity for
20myears, giving a total of 20 payments. If the interest rate is 4
% , what is her promise worth today?
Show your work. Suppose that John takes a loan of 7000 today and pay 1000 in 3...
Show your work. Suppose that John takes a loan of
7000 today and pay 1000 in 3 years and he takes another loan of
2000 in 4 years. He plans to pay everything in 5 years. If the
interest rate is 12 compounded monthly, what is his payment in 5
years?
A rich aunt has promised you $2,810.00, one year from today. In addition, each year after...
A rich aunt has promised you $2,810.00, one year from today. In
addition, each year after that , she has promised a payment (on the
anniversary of the last payment) that is 4.00% larger than the last
payment. She will continue to show this generosity for 25 years,
giving a total of 25 payments. If the interest rate is 10.00%, what
is her promise worth today?
A rich aunt has promised you $5000 one year from today. In addition, each year after...
A rich aunt has promised you $5000 one year from
today. In addition, each year after that, she
has promised you a payment (on the anniversary of the
last payment) that is 5% larger than the
last payment. She will continue to show this
generosity for 20 years, giving a total of 20 payments.
If the interest rate is 5%, what is her promise worth
today?
A rich aunt has promised you $6,000 one year from today. In addition, each year after...
A rich aunt has promised you $6,000 one year from today. In
addition, each year after that, she has promised you a payment
(on the anniversary of the last payment) that is 3% larger than
the last payment. She will continue to show this generosity for
20years, giving a total of 20 payments. If the interest rate is
9%, what is her promise worth today?
The present value of the aunt's promise is?
A rich aunt has promised you $3,000 one year from today. In addition, each year after...
A rich aunt has promised you $3,000 one year from today. In
addition, each year after that, she has promised you a payment
(on the anniversary of the last payment) that is 3% larger than
the last payment. She will continue to show this generosity for 20
years, giving a total of 20 payments. If the interest rate is 9%,
what is her promise worth today?
A rich aunt has promised you $3,000 one year from today. Inaddition, each year after that,...
A rich aunt has promised you $3,000 one year from today.
Inaddition, each year after that, she has promised you a
payment(on the anniversary of the last payment) that is 3% larger
than the last payment. She will continue to show this generosity
for 20 years, giving a total of 20 payments. If the interest rate
is 8%, what is her promise worth today?
A rich aunt has promised you $3,000 one year from today. In addition, each year after...
A rich aunt has promised you $3,000 one year from today. In
addition, each year after that, she has promised you a payment
(on the anniversary of the last payment) that is 2% larger than
the last payment. She will continue to show this generosity for
2020 years, giving a total of 2020 payments. If the interest rate
is 4%, what is her promise worth today?
1. A bookstore offers you the following deal: you pay $36 today(in January) and you...
1. A bookstore offers you the following deal: you pay $36 today
(in January) and you get 5%off the price of everything you purchase in December (for
simplicity assume exactly 12months from now). If your savings account earns 4.03% APR
(compounded monthly), howmuch do you have to buy in December to just break even on the
offer?2.You expect that you will need to replace your furnace in 3 years
at a cost of $16,944. Howmuch must you save, each month...
In her will, your aunt set up a trust that is required to pay you the...
In her will, your aunt set up a trust that is required to pay
you the sum of $5,000 a year forever with payments starting
immediately. However, the news is better. She has specified that
this $5,000 should grow at 5% per year. Given an interest rate of
12%, what is the PV of the inheritance? Please include formulas
used. Thanks
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