This
preview
has intentionally blurred sections.
Sign up to view the full version.
This
preview
has intentionally blurred sections.
Sign up to view the full version.
This
preview
has intentionally blurred sections.
Sign up to view the full version.
Unformatted text preview: ON A TIME LINE ❚ ANNUAL INCOME OF $20,000 ❙ ANNUITY (n = 8 yrs, i = 7%) ❚ SAVED $5,000 FOR PAST 6 YRS ❙ ANNUITY (n = 6 yrs, i = 7%) ❚ WILL HAVE TO SAVE FOR NEXT 14 YEARS ❙ ANNUITY (n = 14 yrs, i = 7%) ❚ PROF WRITE OUT TIME LINE 5. CALCULATE ANSWER ❚ PV OF ANNUAL INCOME REQ’T (n = 8 yrs, i = 7%) ❙ $20,000 X 5.971 = $119,420 ❚ VALUE TODAY OF PAST SAVINGS (n = 6 yrs, i = 7%) ❙ $5,000 X 7.153 = $35,765 ❚ FV OF SAVINGS (n = 14 yrs, i = 7%) ❙ $35,765 X 2,579 = $92,238 ❚ SAVINGS SHORTFALL (in year 14) ❙ $119,420 - $92,238 = $27,182 2. IDENTIFY CASH FLOW INVOLVED IN THE SITUATION ❚ READ PROBLEM & WRITE CASH FLOWS ❚ EXAMPLE: A STOCK PAYS A $2.50 YEARLY DIVIDEND & EXPECT TO SELL IT FOR $75.00 IN FIVE YEARS ❚ YEARLY DIVIDEND = $2.50 ❚ SELL IN 5 YRS = $75.00...
View
Full Document
- Spring '11
- -
- Time Value Of Money, annual income
-
Click to edit the document details