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problemset02

# problemset02 - ECN801 V Bardis Problem Set 2 1 A rm just...

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ECN801, V. Bardis Problem Set 2 1. A firm just bought a truck with a useful life of 5 years and of no value after the 5th year. Maintenance costs are 1,000 in year 1 and will increase by 250 per year over the remaining periods. All costs occur at the end of the year. The firm wants to set up a ‘maintenance account’ which earns 12% annual interest so that all costs will be paid from this account. How much should the firm deposit in the acccount today? Confirm that your answer is correct by writing down the ‘balance sheet’ for this account. 2. Mary deposits 15,000 in a bank account and directs the bank to pay her nephew 1,000 per year (at the end of the year) for 20 years. If the bank account is empty at the end of the 20th year, what is the interest rate offered by the bank on this deposit? 3. Jacques invests 25,000 in a firm. In return, the company pays him 1,000 at the end of each year for 9 years and at the end of period 10 it pays Jacques a lump-sum amount of 26,000.
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