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# Copy of Assignment 1 Answers-2 - #2 Payment of \$70,000...

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#2 Payment of \$70,000 arrives in period 3. (a) \$62,229.75 (b) \$165,894.32 \$165,894.32 The present value = 70,000/(1.04 3 )= The value in time period 25 = 70,000 x (1.04 22 ) = Alternatively, you can calculate this as \$62,229.75 x (1.07 25 ) =

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#3(a) I. Cost of RV in present value terms if he pays cash = \$42,000.00 II. PV of paying \$45,000 in time 2 = 45,000/(1.07^2) = \$39,304.74 II. PV of paying 72 monthly payments of \$675= =PV(0.07/12,6*12,-675) = \$39,591.75 3(b) To solve this, try different discount rates in part II until the PV reaches just over \$42,000 r= 3.5098% PV= \$42,000.03 If r<3.51%, then option I will be preferred to option II.
4(a) If you will be making equal deposits into a retirement account for 10 years (with each payment at the end of the year), how much must you deposit each year if the account earns 6% compounded annually and you wish to have \$200,000 after 30 years? There are many ways to do this. One is to do all calculations in PV. Step 1: PV of 200,000 in 30 years at 6%: \$34,822.03 Step 2: Annuity with PV = \$34,822.03 and 10 equal annual payments at 6%: (\$4,731.20) So 10 payments of \$4,731.20 is the answer. Alternative method 1: Step 1: Find FV in time 10 of 200,000 in time 30: \$62,360.95 Step 2: Solve for the payment that equals FV10 of 62,360.95 using =PMT()

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