ACCT2010 Quiz 2 Solution

ACCT2010 Quiz 2 Solution - Problem 1: Time value of money...

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

View Full Document Right Arrow Icon
Page 1 of 4 Problem 1: Time value of money (27 Points) A. Since the first payment will start on your 65th birthday, and continue for 30 years. As of your 64th birthday, the payment is an annuity at $600,000 per year, for 30 years, that starts in the next year. Use the present value of annuity formula: $600,000 ∗ ൤ 1 0.09 1 0.09 ∗ ሺ1 + 0.09ሻ ଷ଴ ൨ = $6,164,192 Therefore, as of the 65th birthday, the value of the annuity is: $6,164,192 * 1.09 = $6,718,970. The $6,718,970 is the value of the saving as of your 65th birthday, your retirement date. B. To calculate the annual savings, first calculate the value of the savings as of your 28th birthday. $6,718,970 ሺ1 + 0.09ሻ ଷ଻ = $277,027.1 Therefore, the present value of your annual savings as of your 28th birthday should equal $277,027.1. Your annual savings starts on your 29th birthday, and have in total 37 payments. Therefore, using the present value of annuity formula: ܵܽݒ݅݊݃ݏ ∗ ൤ 1 0.09 1 0.09 ∗ ሺ1 + 0.09ሻ ଷ଻ ൨ = $277,027.1 ܵܽݒ݅݊݃ݏ = $26,004.63 C. Since the first payment will start on your 66th birthday, and continue forever. As of your 65th
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 12/20/2011 for the course ACCT/MGMT 2010 taught by Professor A during the Spring '11 term at HKUST.

Page1 / 4

ACCT2010 Quiz 2 Solution - Problem 1: Time value of money...

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