Ten annual payments are made into an investment account that pays 8% annual interest. The first...

Ten annual payments are made into an investment account that pays 8% annual interest. The first payment of $15,000 occurs at the end of year 1 and subsequent payments increase by $5,000 each year. The money is then left in the account until the end of year 20.

What is the present value of the cash flows?
How much money is in the account at the end of year 20?

Expert Solution

Answer A

Computation of present value of the cash flows

Years	Amount	Dicounting Factor @ 8%	Present value
	A	B	*AB**
1	15,000.00	0.925926	13,888.89
2	20,000.00	0.857339	17,146.78
3	25,000.00	0.793832	19,845.81
4	30,000.00	0.735030	22,050.90
5	35,000.00	0.680583	23,820.41
6	40,000.00	0.630170	25,206.79
7	45,000.00	0.583490	26,257.07
8	50,000.00	0.540269	27,013.44
9	55,000.00	0.500249	27,513.69
10	60,000.00	0.463193	27,791.61
		Total =	230,535.38

So, PV of Cash Flow = $ 230,535.38

Answer B

Money is in the account at the end of year 20 = $ 230,535.38 * (1.08)^20

= $ 230,535.38 * 4.66096

= $ 1,074,516.18

jeff jeffy answered 1 year ago

Mary made five annual deposits of $8000 in a savings account that pays interest at a...

Mary made five annual deposits of $8000 in a savings account that pays interest at a rate of 6% per year. One year after making the last deposit, the interest rate changed to 15% per year. Five years after the last deposit, how much accumulated money can she withdraw from the account?draw the cash flow diagram.

You made an investment of $8,000 into an account that paid you an annual interest rate...

You made an investment of $8,000 into an account that paid you an annual interest rate of 3.1 percent for the first 5 years and 7.5 percent for the next 10 years. What was your annual rate of return over the entire 15 years?

Please use excel If you deposit $5,000 in a savings account that pays 8% annual interest...

Please use excel If you deposit $5,000 in a savings account that pays 8% annual interest compounded monthly, and make no other deposits to the account, how much will you have after 5 years? $7,449.23 In addition to the $5,000 as specified in the above problem, how much will you have at the end of 5 years if you also deposit an additional $200 at the end of each month for the entire 5 year period? In addition to the...

First City Bank pays 8 percent simple interest on its savings account balances

First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually. If you made a $61,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 8 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Difference in accounts =

A ten-year annuity immediate pays 2000 at the end of the first year, and payments increase...

A ten-year annuity immediate pays 2000 at the end of the first year, and payments increase by 100 each year. If the annuity yields 6% annual effective interest, determine the Macaulay duration.

A bond pays 7% annual interest in semi-annual payments for 10 years. The current yield on...

A bond pays 7% annual interest in semi-annual payments for 10 years. The current yield on similar bonds is 9%. To determine the market value of this bond, you must find the interest factors (IFs) for 10 periods at 7%. find the interest factors (IFs) for 20 periods at 4.5%. find the interest factors (IFs) for 10 periods at 9%. find the interest factors (IFs) for 20 periods at 3.5%.

Investment A will make N annual payments of $500 with the first of the N payments due immediately.

6. Investment A will make N annual payments of $500 with the first of the N payments due immediately. Investment A has a value of $20,000. Investment B is an ordinary annuity that will make (N minus 1) annual payments of $500 with the first payment due in one year from today. If investment A and investment B have the same expected return, then what is the value of investment B? $20,500 The value of...

Suppose Evan deposited $10,000 into a savings account today. The account pays a nominal annual interest...

Suppose Evan deposited $10,000 into a savings account today. The account pays a nominal annual interest rate of 12%, but interest is compounded quarterly. Assuming that he makes no additional deposits into or withdrawals from the account, what will his ending balance be 10 years from today?

A deposit of X is made into a fund which pays an annual effective interest rate...

A deposit of X is made into a fund which pays an annual effective interest rate of 8% for 5 years. At the same time, 2X is deposited into another fund which pays an annual effective rate of discount of d for 3 years. The amounts of interest earned over the 10 past years are equal for both funds. Calculate d.

An investment promises to make $100 annual payments forever. If the annual interest rate is 7%,...

An investment promises to make $100 annual payments forever. If the annual interest rate is 7%, then what is the value of this investment today? Round your answer to 2 decimal places.

Question