Quiz_Chap_5 - Homework Manager - FIN 301 - Section 1

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Question 1: Score 0.5/1 Your response Correct response Calculating Annuity Values If you deposit $1,900 at 8.5 percent interest at the end of each of the next 21 years you will have $ 91916.33 (0%) in the account. If you make deposits for 42 years, you will have $ 665322.76 (50%) in the account at the end of 42 years. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Calculating Annuity Values If you deposit $1,900 at 8.5 percent interest at the end of each of the next 21 years you will have $ 101,629.21 with a tolerance of ± 0.1% in the account. If you make deposits for 42 years, you will have $ 665322.76 in the account at the end of 42 years. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Total grade: 0.0×1/2 + 1.0×1/2 = 0% + 50% Feedback: Here we need to find the FVA. The equation to find the FVA is: FVA = C {[(1 + r) t – 1] / r } FVA for 21 years =$1,900[(1.085 21 – 1) / 0.085] FVA for 21 years = $101,629.21 FVA for 42 years =$1,900[(1.085 42 – 1) / 0.085] FVA for 42 years = $665,322.76 Question 2: Score 0/1 Your response Correct response Calculating Annuity Present Value An investment offers $3,500 per year for 20 years, with the first payment occurring 1 year from now. If the required return is 8 percent, the value of the investment is $ (0%). The value of the investment would be $ (0%) if the payments occurred for 35 years. The value of the investment would be $ (0%) if the payments occurred for 79 years. The value of the investment would be $ (0%) if the payments occurred forever. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Calculating Annuity Present Value An investment offers $3,500 per year for 20 years, with the first payment occurring 1 year from now. If the required return is 8 percent, the value of the investment is $ 34,363.52 with a tolerance of ± 0.1% . The value of the investment would be $ 40,790.99 with a tolerance of ± 0.1% if the payments occurred for 35 years. The value of the investment would be $ 43,649.88 with a tolerance of ± 0.1% if the payments occurred for 79 years. The value of the investment would be $ 43,750 with a tolerance of ± 0.1% if the payments occurred forever. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0% Feedback: To find the PVA, we use the equation: PVA = C ({1 – [1/(1 + r) ] t } / r ) [email protected] yrs: PVA = $3,500{[1 – (1/1.08) 20 ] / 0.08} = $34,363.52 [email protected] yrs: PVA = $3,500{[1 – (1/1.08) 35 ] / 0.08} = $40,790.99 [email protected] yrs: PVA = $3,500{[1 – (1/1.08) 79 ] / 0.08} = $43,649.88 To find the PV of a perpetuity, we use the equation: PV = C / r PV = $3,500 / 0.08 PV = $43,750.00 Notice that as the length of the annuity payments increases, the present value of the annuity approaches the present value of the perpetuity. The present value of the 79-year annuity and the present value of the perpetuity
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/10/2010 for the course FIN 301 taught by Professor Andelin,stevenle during the Spring '07 term at Pennsylvania State University, University Park.

Page1 / 5

Quiz_Chap_5 - Homework Manager - FIN 301 - Section 1

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online