FALL 2007 EXAM 2 - at Year 0 of $7,500.00 while Perpetuity...

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FALL 2007 EXAM 2 17. Assume that you have just turned 20 (Year 20) and are planning for your retirement. You would like to stop working and take a $175,000 yearly withdrawal from your personal investment account in Years 51-95 (45 years), and you assume that any other needs will be met by having a company pension and/or social security benefits to which you might be entitled. You realize that your salary will increase over time so you intend to deposit $8,000 in each of Years 21-30 (10 years) and then deposit $18,000 in each of years 31-40 (10 years). If you believe that the appropriate interest rate is a nominal annual interest rate of 9.25 percent, but where compounding is daily (assume a 365-day year), determine how much you would have to deposit in each of Years 41-50 (10 years) so that you can begin making your withdrawals in Year 51. A. $26,692.13 B. $12,103.08 C. $31,555.17 D. $21,829.11 E. $16,966.10 20. Assume that Perpetuity 1 has cash flows in Years 1 through infinity and a value
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Unformatted text preview: at Year 0 of $7,500.00, while Perpetuity 2 has equivalent cash flows in Years 31 through infinity and a value at Year 30 also of $7,500.00. Also assume that a 30-Year annuity with equivalent cash flows in Years 1 through 30 has a future value of $92,007.59 at Year 30. Given this information, determine the amount of the perpetuity/annuity payment in each year. (Hint: you first have to determine the nominal, annual interest rate that is being used in this problem.) A. $750.00 B. $725.00 C. $700.00 D. $675.00 E. $650.00 21. Assume that an investment will make 46 payments in Years 0 - 45, with the first payment in Year 0 equal to $250.00 and each subsequent payment growing at a 10 percent rate (that is, Year 1 = $275.00, Year 2 = $302.50, etc.). Determine the present value of these payments at Year 0 if the discount rate is 18 percent. A. $4,249.86 B. $3,541.54 C. $4,604.02 D. $3,895.70 E. $4,958.16...
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