What is the present value of the perpetuity

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Reference no: EM132208118

Answer the following Question :

1. John Jetison believes he would need $500,000 to retire today and keep his same lifestyle. If Jetison estimates he will retire in 20 years, how much should he put away each month to have the equivalent of $500,000 in 20 years if the interest he can earn is 5%?

If the interest rate changes to 3%, what will Jetison need to save each month? Picture cash flows on a timeline and present it when providing your answer. Think about your own retirement; what would the timeline look like? In what ways could you better prepare for retirement?

2. Much to your surprise, you were selected to appear on the TV show, "The Price is Right." As a result of your prowess in identifying how many rolls of toilet paper an average American family keeps on hand, you win the opportunity to choose one of the following: $2,000 today, $10,000 in 10 years, or $31,000 in 29 years. Assuming you can earn 12% on your money, which should you choose?

3. How many years will it take for $500 to grow to $1,051.82 at 9% interest compounded annually?

4. Alex Karez has taken out a loan of $180,000 with an annual rate of 10% compounded monthly to pay off hospital bills from his wife's illness.

If the most Alex can afford to pay is $3,500 a month, how long will it take to pay off the loan? How long will it take to pay off the loan if he can pay $4,000 each month? Use five decimal places for the monthly percentage rate in your calculations. If Alex can pay $3,500 a month, how many years will it take to pay off the loan?

What is the present value of a $650 perpetuity discounted back to the present at 10%? What is the present value of the perpetuity?

5. You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:

Investment

End of Year

A

B

C

1

$ 1,000

$ 1,000

$ 5,000

2

2,000

1,000

5,000

3

3,000

1,000

(5,000)

4

(4,000)

1,000

(5,000)

5

4,000

3,000

15,000

6. What is the present value of investments A, B, and C if the appropriate discount rate is 10%?

Reference no: EM132208118

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