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- A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $3,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 4% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? ARCKICHI a. What is today's value of the bequest? Today's value of the bequest is $(Round to the nearest dollar. b. What is the value of the bequest immediately after the first payment is made? The value of the bequest immediately after the first payment is made is $ (Round to the nearest dollar.)Suppose that you earn $320 in year 1 and will ean $720 in year 2. If you borrow money against your future income you will have and additional $576 to spend in year 1, and if you lend all of your current income you will have and additional $400 to spend in year 2. In both years you consume only food which costs $1 per kilogram in each year. What is the interest rate that you borrow and lend at? R= Let your MRS for food in year 1 with food in year 2 be given by the formula where F is the amount of food consumed this year and F is the amount of food consumed next year. Calculate your consumption bundle: F = F = Suppose the interest rate at which you can borrow and lend changes to 20%. Calculate your new consumption bundle: F = F2 = Which interest rate is preferred? The initial interest rate found in part 1 O The new interest rate, 20%A state lottery gives a winner the choice of receiving the winning amount in equal monthly payments for 20 years or receiving a lump sum equal to the present value of an annuity with future value equal to the winnings. The winner selecting monthly payments will receive $4,000,000/240 = $16,666.67 each month for each million dollars of winnings. (Round your final answers to two decimal places.) (a) Find the present value of an annuity with monthly payments of $16,666.67, at an Interest rate of 5.2% for 20 years, for the winner who wants a lump-sum payment. $ X (b) In order for the lottery to be more profitable, it is decided to pay the winnings in equal monthly payments for 25 years. Find the monthly payments of $4 million in winnings. $ Find the present value of an annuity with those monthly payments at 5.2% for 25 years. $
- 1. Future and present values Suppose a relative has promised to give you $1,000 as a wedding gift the day you get engaged. Assuming a constant interest rate of 5%, consider the present and future values of this gift, depending on when you become engaged. Complete the first row of the following table by determining the value of the gift in one and two years with interest if you become engaged today and save the money. Date Received Today In 1 year In 2 years Present Value (Dollars) 1,000.00 Value in One Year (Dollars) 1,000.00 Value in Two Years (Dollars) 1,000.00 Now complete the first column of the previous table by computing the present value of the gift if you get engaged in one year or two years. The present value of the gift is if you get engaged in one year than it is if you get engaged in two years.is based on the notion that a dollar paid in the future is less valuable than a dollar paid today. The present value of a loan in which $1000 is to be paid out a year from today with the interest rate equal to 1% is $. (Round your response to the neareast two decimal place) If a loan is paid after two years, and the amount $1000 is to be paid then with a corresponding 2% interest rate, the present value of the loan is $. (Round your response to the neareast two decimal place) Next 11:41 AMAssume Medet decided to buy a car. His friend Aidar has lent him $10,000 USD. Medet and Aidar agree that Aidar should earn a real return of $5 percent per year. Enter your responses rounded to two decimal places. (a). The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be $111 in one year and $128 in two years. What nominal rate of interest should Aidar charge Medet? The nominal rate of interest charged should be % in year 1. The nominal rate of interest charged should be % in year 2. (b). Suppose Aidar and Medet are unsure about what the CPI will be in one year. How should Aidar and Medet's annual repayments ensure that he gets an annual $5 percent rate of return? Aidar should charge Medet % more than the inflation rate.
- Which of the following is correct? For every additional dollar in Lifetime_value, Incore is expected to increase by $0.042 For every additional dollar in Lifetime_value, Income is expected to decrease by $0.042 For every additional dollar in Income, Lifetime_value is expected to decrease by $0.042 For every additional dollar in Income, Lifetime_value ($) is expected to increase by $0.042Suppose that Anna's college education would cost around $500,000 when they enter college in 15 years. At present, She have $100,000 to invest.What annual interest must she earn on her investment to cover the costSuppose that you are considering an investment, which would require you to pay $1,000 up front (today), and you would receive a payment of $100 per year, for 5 years, beginning one year from now. One year after your fifth payment, you would then have $800 paid to you as a final payment. Assume that the interest rate is equal to 5%. Round all answers to two decimal places. 5. Calculate the Present Value (PV) of the cost and each of the payments for the investment. Does this investment have a positive or negative present value? Should you make this investment? 6. How much would the initial cost ($1,000) need to change for you to be exactly indifferent about this investment? (i.e. you receive the same return for making this investment as you do for not making this investment?)
- Suppose a relative has promised to give you $1,000 as a wedding gift the day you get engaged. Assuming a constant interest rate of 5%, consider the present and future values of this gift, depending on when you become engaged. Complete the first row of the following table by determining the value of the gift in one and two years with interest if you become engaged today and save the money. Date Received Present Value Value in One Year Value in Two Years (Dollars) (Dollars) (Dollars) Today 1,000.00 In 1 year 1,000.00 In 2 years 1,000.00 Now complete the first column of the previous table by computing the present value of the gift if you get engaged in one year or two years. The present value of the gift is if you get engaged in two years than it is if you get engaged in one year.Suppose Latasha is a sports fan and buys only baseball caps. Latasha deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $10.00. Initially, the purchasing power of Latasha's $3,000 deposit is baseball caps. For each of the annual inflation rates given in the following table, first determine the new price of a baseball cap, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Latasha's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest baseball cap. For example, if you find that the deposit will cover 20.7 baseball caps, you would round the purchasing power down to 20 baseball caps under the assumption that Latasha…Suppose that $500 is invested at the end of every year for 5 years. The polynomial function that models the value of the investment is P(x) = 500x5 + 500x4 + 500x³ + 500x² + 500x, where x represents the effective interest rate plus 100%. One year after the last payment, the investment is worth $3200. Find the effective interest rate one year after the last payment, to the nearest tenth. (Note: You will need to subtract 1 from the value of x to find the effective interest rate.)