FIN Chapter 4 - Gu;z'(q}2i/oq):45mzn bg‘rf‘m‘g. 6“...

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Unformatted text preview: Gu;z'(q}2i/oq):45mzn bg‘rf‘m‘g. 6“ Cm W .Z?+5 M5 (.5) E243 ch \‘W ‘5} . “'0 Ch “2. le— r varm\ . Read my firm- % “I'm-\“khzk ‘dfim 39m. Wm *3 Kwfl-Sufi) ‘4’ Wag 2M9."ng (23 WW My: (shew v4.ch -bo+han firm W ~W memmm SW 0 1,35%“ka “Tm Value Taloks *Nn idohnrs ’ CwLCdeV 4530000 C C(1+g) C(Hg)2 (:{1+g)3 C(1+g)‘5 C(1+g)‘” initial investment at t=0 is $30,000 Let C represent the value of first withdrawal at t=1 (Le. after first month) Total monthly withdrawals T = 48 It is a growing annuity with r = 0.7% and g = 0.3% Present Value (PV) of this annuity should equal $30,000. Pv=—C~§ x [1 — (“i-if] = 30000 r— (Li-1")T . C __ (1.003)“3 _ "6‘ 00074003 x [1 (1.0030431 _ 30000 Therefore, first monthly withdrawal C = $690.05 Growing Annuity: Cash Flows on time line: 0 1 2 3 T c C(1+g) C(1+g)2 C(1+g}T-1 Formula for present value of a growing annuity: [1 — (1:01 \fa.‘ Mann; - v 5L 1 47¢ ulna-F H o-i i911? Problem. MixedCash Flow ; at“, _ b “:3; _ .. .._.. .1, ,.___ an additionai $ 000 (in addition to the $2000). - How much rnone does Trey have in the its? W account now if the ank pays an annual interest of 6% for the first 5 years and 8% thereafter? ED $3 ODD m “ab . i “Ap— ‘k/ alt-3 Wis Hm. vb Mm: ‘4 t, a; WKLFVFMfi-fiiimsi‘g : $30,061.58 @‘Mw : When The was born, his arents estabiished a 43 ban account to he p with his ccliege 6 {I 8?- p; expenses “.r “11 0 At the time of his birth, they deposited $5000 in s . a the account f' '83-” ii garb @Q/fl 3 . Sinoenthen‘ thiey have heen de $2000 2 (a 1g 3 o annuaylno eaocoun oneac I ay. 5 003 r E . .. .. g - Yesterday {Tre 's 18th birthday) they deposited ® 2' g 3“ (a) I '0 .6 '3 H $139§E £5.95 we + '5 G 41 ” LE @ith-FVFA 52.53;) a $4 ammo “97 ‘ii - 94: 0 #8 31.4% 9?; @bSE' (,FVFfiwsfi (Fl/{537.133 :2 $‘gxfiégfif 10 "Wt 2.4m ‘ Delayed Perpetuity Problem What is the present value of e perpetuity that starts paying $1.000 annually after three years? The time value of money is 10% (annual) until I = 3 years. decreases to 8% (annual) for the next 10 years and further decreases to 5% (annual) thereafter? dame 04k Pin-3 Aim MW cure Eat? es’r Gillie/09 mfimll :S‘éoM? * seized \l. :M‘Wfi |I ____._'l| 12am (W W m) II. on +3 +3 NI-a-u .e 0 .b ' ma” _ 4111.6“: _-2,411.ss “Vellum car He — F—M; “ (At-r ‘9 elm-tut “4' + =3 flfimfl) 9W: B—lbzrwo-rhdwt-‘afiJS :looo+wmlb.?lol :sqtgmpt @3 -Vt.\u& +=o : $110.0} “13.27.10,.5l; 3 s $62.64 {ll-1’13 " [1.0; finf'fl‘A fCr--nm JAN Enmmfifim :lu 19V 1 WOK(PVFQ,;°15’1:>“ £1925) "v 1001:6525} (2.102?) : Y (MHZ? ?5 €[l‘ffir‘3fl '5ng $649$1Nr +1: am3¥vs Mam?“ bummer. 3 Farms Weill 71mi- ‘3 51 “VF-{922% a) How much money will you have in your bank acoountdmLBW if you make ten annual epos'rte of $100,000 st ' ? The bank pays an annual (state interest of 10%, mmundedjemtamualw. Answer: $7,685,563 (,.e021cL1a—.10L$)“=$5M m age, Q €195,059 b) How much should each of the ten de osits be if you want to have $5 million after 2 years? Answer: $65,056 mhmao Wefk w'r’k Ll (team! Places, rm 2 Mutual PM -: L3o'z‘7.il-§( willie-3X :$?l:36,§(.§ M b-o’H I s . . \ . r . Q4375 1' MM (sh/«v5 new: 5% J anwlfi MI gheelmm ‘ SAIR v. EAR Example 1 'j c <~ E C ' we 3, 0 q 15 pvzsflan (“'37) : (4,4521%: ...
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This note was uploaded on 01/15/2010 for the course FIN 357 taught by Professor Hadaway during the Fall '06 term at University of Texas at Austin.

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FIN Chapter 4 - Gu;z'(q}2i/oq):45mzn bg‘rf‘m‘g. 6“...

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