3. A business is considering purchasing a machine that is
projected to yield cash, savings of $1,000 per year over a 10-year
period. Using a 12 percent discount rate, calculate the present
value of the savings. (Assume that the cash savings occur at the
end of each year).
4. Yolanda William is 35 years old today and is beginning to
plan for her retirement. She wants to set aside an equal amount at
the end of each of the next 25 years so that she can retire at age
60. She expects to live to an age of 80 and wants to be able to
withdraw $50,000 per year from the account on her 61st through 80th
birthdays. The account is expected to earn 10 percent per year for
the entire period of time. Determine the size of the annual
deposits that she must make.
5. How much must you deposit at the end of each year in an
account that pays a nominal annual rate of 20 percent, if at the
end of five years you want $10,000 in the account?
6. A leading broker has advertised money multiplier certificates
that will triple your money in nine years; that is, if you buy one
for $333.33 today, it will pay you $1,000 at the end of nine years.
What rate of return will you earn on these money multiplier
certificates?
7. Your great-uncle Claude is 82 years old. Over the years, he
has accumulated savings of $80,000. He estimates that he will live
another 10 years at the most and wants to spend his savings by
then. (If he lives longer than that, he figures you will be happy
to take care of him) Uncle Claude places his $80,000 into an
account earning 10 percent annually and sets it up in such a way
that he will be making 10 equal withdrawals- the first one
occurring one year from now- such that his account balance will be
zero at the end of 10 years. How much will he be able to withdraw
each year?
8. Jim Nance has been offered a future payment of $500 three
years from today. If his opportunity cost is 7% compounded
annually, what value should he place on this opportunity today?
What is the most he should pay to purchase this payment today?
