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F301

Financial Management
2010 Fall
Problem Set 3
•
Assignments should be handed in on a separate sheet of paper.
If you have multiple
sheets, please staple your assignment together.
•
Please show your work in a wellorganized, businesslike fashion. It should be neither
crowded nor illegibly tiny. Questions should be in numerical order and professionally presented.
Make this assignment look like something you could submit to your boss.
•
Full credit will only be given when you show your work. Show formulas and equations or
calculator inputs (TVM keys).
•
Each question is worth three points. Total possible points = 42.
1.
To prepare for her retirement, an investor plans to make a deposit at the end of each
month into a retirement fund. She plans to retire 35 years from now, so she will
make 420 deposits. After she retires, she wants to withdraw $48,000 from this fund
at the end of each year for the next 20 years. If the fund will earn a rate of return of
6.3% per year (EAR) both before and after retirement, how much must she deposit
each month up until retirement in order to meet her objective? That is, what is the
amount of the monthly deposit, to fund the annual withdrawals?
2.
3.
I loaned my brotherinlaw $2,000 for six months. I’m charging him interest at the
rate of 1% per month. I have agreed, however, to permit him to make just two
payments, one at the end of each quarter. What will be the amount of his quarterly
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 Spring '10
 TINDALL
 Management

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