63. Your mother helped you start saving $25 a month beginning on your 10thbirthday. She always made you make your deposit on the first day of each month just to "start the month out right." Today, you turn 21 and have $4,482.66 in your account. What is your rate of return on your savings?
A. 5.25%B.5.29%C. 5.33%D. 5.36%E. 5.50%answer. You can then use the calculator answer as the rate in the formula just to verify that you answer is correct.
This can not be solved directly, so it's easiest to just use the calculator method to get an
To more decimal places, the answer is 5.28632%.
Difficulty level: Easy
Topic: ANNUITY DUE INTEREST RATE
Type: PROBLEMS
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Chapter 04 - Discounted Cash Flow Valuation
64. Today, you turn 21. Your birthday wish is that you will be a millionaire by your 40th
birthday. In an attempt to reach this goal, you decide to save $25 a day, every day until you
turn 40. You open an investment account and deposit your first $25 today. What rate of return
must you earn to achieve your goal?
This can not be solved directly, so it's easiest to just use the calculator method to get an
To more decimal places, the answer is 15.0697117%.
Difficulty level: Easy
Topic: ANNUITY DUE INTEREST RATE
Type: PROBLEMS
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Chapter 04 - Discounted Cash Flow Valuation
65. Marko, Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,000, $9,000, and $15,000 over the next three years, respectively. After that time, Marko feels ABC will be worthless. Marko has determined that a 14% rate of return is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.?
Present value = $4,385.96 + $6,925.21 + $10,124.57 = $21,435.74
Difficulty level: Easy
Topic: UNEVEN CASH FLOWS AND PRESENT VALUE
Type: PROBLEMS
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Chapter 04 - Discounted Cash Flow Valuation
66. You are considering two savings options. Both options offer a 4% rate of return. The first option is to save $1,200, $1,500, and $2,000 a year over the next three years, respectively. The other option is to save one lump sum amount today. If you want to have the same balance in your savings at the end of the three years, regardless of the savings method you select, how much do you need to save today if you select the lump sum option?
Present value = $1,153.85 + $1,386.83 + $1,777.99 = $4,318.67
Difficulty level: Easy
Topic: UNEVEN CASH FLOWS AND PRESENT VALUE
Type: PROBLEMS
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Chapter 04 - Discounted Cash Flow Valuation