Timothy is retiring from his job soon at which time his employer will make the following offer: A lump sum amount of $200,000 A sum of $15,000 at the beginning of each yearfor the next 25 years. If the average interest rate is likely to be 5.5% p.a. for the next 25 years, which option should Timothy choose?

Timothy is retiring from his job soon at which time his employer will make the following offer: A lump sum amount of $200,000 A sum of $15,000 at the beginning of each yearfor the next 25 years. If the average interest rate is likely to be 5.5% p.a. for the next 25 years, which option should Timothy choose?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 14E

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Timothy is retiring from his job soon at which time his employer will make the following offer: A lump sum amount of $200,000 A sum of $15,000 at the beginning of each year for the next 25 years. If the average interest rate is likely to be 5.5% p.a. for the next 25 years, which option should Timothy choose?
Timothy is retiring from his job soon at which time his employer will make the following offer: A lump sum amount of $200,000 A sum of $15,000 at the beginning of each month for the next 25 years. If the average interest rate is likely to be 5.5% p.a. for the next 25 years, which option should Timothy choose?
Tim is retiring from his job soon at which time his employer willmake the following offer:1. A lumpsum amount of $200,0002. A sum of $15,000 at the beginning of each year for the next 25years.If the average interest rate is likely to be 5.5% p.a. for the next25 years, which option should Tim choose?
Timothy is retiring from his job soon at which time his employer willmake the following offer:1. A lumpsum amount of $200,0002. A sum of $15,000 at the beginning of each year for the next 25years.If the average interest rate is likely to be 5.5% p.a. for the next25 years, which option should Timothy choose?
Tommy is retiring from his job soon at which time his employer willmake the following offer:1. A lumpsum amount of $200,0002. A sum of $15,000 at the beginning of each year for the next 25years.If the average interest rate is likely to be 5.5% p.a. for the next25 years, which option should Timothy choose?
You hire Thomas to work for you for five years, and you agree to put away enough money as a lump sum now to fund an annuity for him. At the end of those five years, he will retire and may begin drawing out $20,000 per year for five years, starting on the last day of each year (in this case, the end of year 6, from when this arrangement began, through year 10). How much must you invest today if your guaranteed interest rate is 3% compounded annually for all 10 years? (RESOURCE: Annuities) Note: Another two-stage present value problem, involving first finding a present value at a starting point (even though it occurs in our future!) that will generate a series of future payments and then calculating a single-amount present value today to achieve that future goal when payments (withdrawals) will begin. Please show how to solve for both steps, thank you!
A) Your client is evaluating between the following two retirement options: Option 1: Pays a lump sum of $3.5 million in 6 years. Option 2: A 25-year annuity at $180,000 per year starting today. If your client’s required rate of return is 6 percent per year, discuss the option she must choose based on a higher present value? B) Neal plans to buy a car worth $42,000 today. He is required to pay 15 percent as a down payment and the remainder is to be paid as a monthly payment over the next 12 months with the first payment due at t = 1. Given that the interest rate is 8% per annum compounded monthly, compute the approximate monthly payment. Discuss the impact of increase in interest rate on the monthly payment.
You hire Thomas to work for you for five years, and you agree to put away enough money as a lump sum now to fund an annuity for him. At the end of those five years, he will retire and may begin drawing out $ 20,000 per year for five years, starting on the last day of each year (in this case, the end of year 6, from when this arrangement began, through year 10). How much must you invest today if your guaranteed interest rate is 3% compounded annually for all 10 years?
C. Fred is planning on retiring this year. How much must his retirement account have in it this year in order to make a $40,000 payment each year for the next 30 years to meet his needs assuming that the appropriate interest rate is 8%?*
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $5,440 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,360 plus an additional investment at the end of the second year of $6,800. What is the NPV of this opportunity if the interest rate is 1.6% per year? Should Marian take it?
Gabriel plans to retire when he has $1,500,000 in his bank account, and he does not want to work more than 30 years. If this account has a APR of 5.4%, determine the minimum monthly annuity payment he would need to make. Round your answer to the nearest dollar.
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $4,600 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,150 plus an additional investment at the end of the second year of $5,750. What is the NPV of this opportunity if the interest rate is 1.9%per year? Should Marian take it? What is the NPV of this opportunity if the interest rate is per year?