HW#1.pdf - ECON3347 FALL 2019 Homework 1 Due at the beginning of class on September 10 1 As winner of a breakfast cereal competition you can choose one

HW#1.pdf - ECON3347 FALL 2019 Homework 1 Due at the...

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ECON3347 FALL 2019 Homework 1 Due at the beginning of class on September 10. 1. As winner of a breakfast cereal competition, you can choose one of the following prizes: a. $100,000 now. b. $180,000 at the end of five years. c. $11,400 a year forever. d. $19,000 for each of 10 years. e. $6,500 next year and increasing thereafter by 5% a year forever. Assume that discount rate is 12%. i. (20 pts) Write down the discounted cash flow equation for each option. ii. (10 pts) Decide which prize you should choose and why? 2. You retire at age 60 and expect to live another 23 years. On the day you retire, you have $568,900 in your retirement savings account. You are conservative and expect to earn 5.2% on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny? i. (10 pts) Write down the discounted cash flow equation. ii. (10 pts) Solve the equation to find the monthly withdrawal amount. 3. The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25 million be paid to the president upon the
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  • Spring '16
  • Islam Rizvanoghlu

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