Question

When Marilyn Monroe died, ex-husband Joe DiMaggio vowed to place fresh flowers on her grave every Sunday as long as he lived. The week after she died in 1962, a bunch of fresh flowers that the former baseball player thought appropriate for the star cost about $10. Based on actuarial tables, “Joltin’ Joe” could expect to live for 25 years after the actress died. Assume that the EAR is 9.4 percent. Also, assume that the price of the flowers will increase at 4 percent per year, when expressed as an EAR. Assume that each year has exactly 52 weeks, and Joe began purchasing flowers the week after Marilyn died.

  

What is the present value of this commitment? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

1	2	3	4= 2x3	5	6= 4x5
Jotlin Joe expected to live	No.of weeks in a year	Expected Flowers cost each year. (Assuming that each year flower cost will increase 4% P.a)	Total expected flower cost for 52 weeks in a year	Present Value Factor for 9.4% EAR	Present value of Flower cost
1	52	10.00	520.00	0.91	475.32
2	52	10.40	540.80	0.84	451.86
3	52	10.82	562.43	0.76	429.55
4	52	11.25	584.93	0.70	408.35
5	52	11.70	608.33	0.64	388.20
6	52	12.17	632.66	0.58	369.03
7	52	12.65	657.97	0.53	350.82
8	52	13.16	684.28	0.49	333.50
9	52	13.69	711.66	0.45	317.04
10	52	14.23	740.12	0.41	301.39
11	52	14.80	769.73	0.37	286.51
12	52	15.39	800.52	0.34	272.37
13	52	16.01	832.54	0.31	258.93
14	52	16.65	865.84	0.28	246.15
15	52	17.32	900.47	0.26	234.00
16	52	18.01	936.49	0.24	222.45
17	52	18.73	973.95	0.22	211.47
18	52	19.48	1012.91	0.20	201.03
19	52	20.26	1053.42	0.18	191.11
20	52	21.07	1095.56	0.17	181.67
21	52	21.91	1139.38	0.15	172.71
22	52	22.79	1184.96	0.14	164.18
23	52	23.70	1232.36	0.13	156.08
24	52	24.65	1281.65	0.12	148.37
25	52	25.63	1332.92	0.11	141.05
			Present value of Flower cost	6913.13
Therefore, present value of this commitment (Flower cost) is $ 6913.13