Annuity Costs
1.
You are considering an annuity which costs $51700 today. The annuity pays $4300 a year. The rate of return is 6 percent. What is the length of the annuity time period? (Do not round intermediate calculations.)
rev: 07_11_2013_QC_32664, 07_12_2013_QC_32664
23.24 years
16.85 years
9.32 years
21.93 years
22.03 years
2.
You just paid $349,000 for a policy that will pay you and your heirs $12,100 a year forever. What rate of return are you earning on this policy?
3.73 percent
3.24 percent
3.35 percent
3.47 percent
1.92 percent
3.
You just paid $360,000 for a policy that will pay you and your heirs $13,200 a year forever. What rate of return are you earning on this policy?
2.04 percent
3.54 percent
3.67 percent
3.96 percent
3.42 percent
4.
Winston Enterprises would like to buy some additional land and build a new factory. The anticipated total cost is $177.99 million. The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project. Management has decided to save $680,000 a month for this purpose. The firm earns 6 percent compounded monthly on the funds it saves. How long does the company have to wait before expanding its operations? (Do not round intermediate calculations.)
165.45 months
261.75 months
167.76 months
130.88 months
218.09 months
5.
For each of the following annuities, calculate the present value. (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Present Value Annuity Payment Interest Rate Years
$
$ 2,300 9 % 7
$
1,370 8 9
$
12,330 10 15
$
31,650 12 31
6.
For each of the following annuities, calculate the annual cash flow. (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g.,32.16).)
Cash Flow Future Value Interest Rate Years
$
$ 24,250 6 % 8
$
970,000 8 37
$
784,000 9 23
$
132,000 5 14
7.
For each of the following annuities, calculate the future value. (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Future Value Annual Payment Interest Rate Years
$
$ 1,250 6 % 10
$
4,560 7 45
$
3,010 4 9
$
7,610 8 33
8.
Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per year forever. Assume the required return on this investment is 7.4 percent.
Required:
How much will you pay for the policy? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)
Policy value today $
9.
Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $39,000 per year forever. A representative for Curly’s tells you the policy costs $640,000.
Required:
At what interest rate would this be a fair deal? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
10.
Rooster Co. has identified an investment project with the following cash flows.
Year Cash Flow
1 $ 1,150
2 1,030
3 1,520
4 1,880
________________________________________
Requirement 1:
If the discount rate is 11 percent, what is the present value of these cash flows? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Present value $
Requirement 2:
What is the present value at 16 percent? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)
Present value $
Requirement 3:
What is the present value at 22 percent? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)
Present value $
11.
You’re prepared to make monthly payments of $250, beginning at the end of this month, into an account that pays 10 percent interest compounded monthly.
Required:
How many payments will you have made when your account balance reaches $65,000? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Number of payments
12.
Suppose you are going to receive $14,000 per year for five years. The appropriate interest rate is 7 percent.
Requirement 1:
a) What is the present value of the payments if they are in the form of an ordinary annuity? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)
Present value $
b) What is the present value of the payments if the payments are an annuity due? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)
Present value $
Requirement 2:
a) Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)
Future value $
b) What is the future value if the payments are an annuity due? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations.Round your answer to 2 decimal places (e.g., 32.16).)
Future value $
Requirement 3:
a) Which has the higher present value, the ordinary annuity or annuity due?
b) Which has the higher future value?
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