1.For your retirement planning, you are currently depositing $350 per month into an account that earns an 8% return, compounded monthly.In 12 years, you expect to increase that deposit by $250 per month (to a total of $600 per month).You plan to retire in 40 years.After you retire, you will move the money into a safe account that earns a guaranteed 3.5% per year.
a.How much will you have when you retire?
b.If you expect to live 35 years past retirement, how much will you be able to withdraw per month to live off of?
c.If you prefer to live off of the interest, thus creating a perpetuity and never touching the principal, how much will you be able to withdraw per month to live off of?
2.A 4-year annuity of $200 monthly payments begins 10 years from now.The required return is 10%, compounded monthly.
a.What is the value of the annuity today?
b.What is the value of the annuity in 3 years?
c.What is the value of the annuity in 7 years?
d.What is the value of the annuity in 10 years?
e.What is the value of the annuity in 12 years?
f.What is the value of the annuity in 15 years?
3.A perpetuity of $1500 quarterly payments begins six years from now.The required return is 10%, compounded quarterly.
a.What is the value of the perpetuity today?
b.What is the value of the perpetuity in 4 years?
c.What is the value of the perpetuity in 6 years?
d.What is the value of the perpetuity in 20 years?
4.You wish to purchase a car in one year.You currently have $2000 to put towards the car’s down payment and access to an account that earns 7%, compounded quarterly.You plan to have $4,000 for the down payment when you purchase the car and the expected price of the car is $20,000.
a.How much do you need to deposit into your account each quarter over the course of this year to have enough for the down payment?
b.If you borrow to purchase the car at a rate of 5% and make equal monthly payments for 4 years to pay back the car, what will your car payment be?
c.How much will you still owe on the car after making the payments from part b) for 2.5 years?
5.Explain the various inputs to the present value of an annuity (i.e. C, r, t, and PVA).How is the value of the annuity impacted by each input?
6.Explain what happens to the value of a perpetuity over time, assuming the perpetuity has begun.
7.Explain what happens to the value of a growing perpetuity over time, assuming the growing perpetuity has begun.
8.Explain why the value today of a perpetuity that doesn’t start until sometime in the future is not simply C/r.Copy and Paste Your Assignment Here