Question

Question 7 5 pts You want to go to Europe 5 years from now, and you can save $3.500 per year, beginning one year from today. You plan to deposit the funds in a mutual fund that you think will return 7.3% per year. Under these conditions, how much would you have just after you make the 5th deposit. 5 years from now? Your answer should be between 18,055.00 and 24,575.00, rounded to 2 decimal places, with no special characters. Question 8 5 pts Your father is about to retire, and wants to buy an annuity that will provide him with $50,000 of income per year for 25 years, beginning a year from today. The going rate on such annuities is 7.25%. How much would it cost him to buy such an annuity today? Your answer should be between 458,000.00 and 760,000.00, rounded to 2 decimal places, with no special characters.

Answer 1

7) We are given the following information:

PMT	$              3,500.00
r	7.30%
n	5
T	1

We need to solve the following equation to arrive at the required FV
$FV=PMT \times \frac{(1+r)^{n}-1}{r}\\\\ FV=3500 \times \frac{(1+0.073)^{5}-1}{0.073}\\\\ FV=20248.42$

So the FV is 20248.42 at the end of 5th year.

8) We are given the following information:

PMT	$            50,000.00
r	7.25%
n	25
frequency	1

We need to solve the following equation to arrive at the required PV

$PV=PMT \times \frac{1-(1+r)^{-n}}{r}\\\\ PV=50000 \times \frac{1-(1+0.0725)^{-25}}{0.0725}\\\\ PV=569788.22$

So the cost of this annuity is 569788.22