Question

-27 How much invested now at an interest rate of 9% compounded annually would be just sufficient to provide three payments as follows: the first payment in the amount of $3,000 occurring two years from now, the second payment in the amount of $4,000 five years thereafter, and the third payment in the amount of $5,000 seven years thereafter?

Answer 1

Solution 27) Computation of Present Value PV factor Present Year @ 9% Cash flow Value 0 1.0000 1 0.9174 2 0.8417 $3,000 $ 2,525.04 3 0.7722 4 0.7084 5 0.6499 $ 4,000 $2,599.73 6 0.5963 7 0.5470 $ 5,000 $2,735.17 Amount to be invested : $ 7,859.94 $ Solution 2.34) Annual Deposits Time Rate 5,000 7 years 5% a) - Deposits at end of each year FV of annuity factor ( 5%, 7) Future Value ($5,000 X 8.1420) $ 8.1420 40,710 b) - Deposits at beg of each year FV of annuity factor ( 5%, 7) 8.5491 Future Value ($5,000 X 8.5491) $ 42,746 Solution 2.37) Cost of Equipment Time Rate of Interest $ 250,000 5 years 5% FV of Annuity ( 5%,5) 5.5256 Annual Deposits ( $ 250,000 / 5.5256) $ 45,243.96

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