Question 17 Your client is 40 years old and
wants to begin saving for retirement. You advise the client to put £ 5,000 a
year into the stock market. You estimate that the market's return will be, on
average, 12 percent a year. Assume the investment will be made at the end of
the year.
a. If
the client follows your advice, how much money will she have by age 65?
b. How
much will she have by age 70?
Question 18 Jason has inherited £ 25,000 and
wishes to purchase an annuity that will provide him with a steady income over
the next 12 years. He has heard that the local savings and loan association is
currently paying 6 percent compound interest on an annual basis. If he were to
deposit his funds, what year-end equal pound amount (to the nearest pound)
would he be able to withdraw annually such that he would have a zero balance
after his last withdrawal 12 years from now?uestion 19 You need to have £ 50,000 at the end of 10 years. To
accumulate this sum, you have decided to save a certain amount at the end of
each of the next 10 years and deposit it in the bank. The bank pays 8 percent
interest compounded annually for long term deposits. How much will you have to
save each year (to the nearest Pound)? Question 20 Louise wishes to borrow £ 10,000 for three years. A
group of individuals agrees to lend her this amount if she contracts to pay
them £ 16,000 at the end of the three years. What is the implicit compound
annual interest rate you receive (to the nearest whole percent)? Calculate
the present value of the following cash flow stream. Assume that the stated
rate of interest is 14 percent per annum discounted semiannually.
22
National
Lottery has offered you the choice of the following alternative payments.Alternative 1: £ 10,000 one year from now
Alternative 2: £ 20,000 five years from now.
a. Which
should you choose if the discount rate is 0 percent? 20 percent?
b. What
rate makes the options equally attractive?
Solution: finance data bank