blem #1: $10,000 is used to purchase an appropriate size annuity that has level annual payments for 18 years. The price ofthe annuity is based on an effective annual rate of 11.2%. As each payment is received, it is put into a fund thatearns an effective annual rate of 7%.(a) Determine the accumulated value of the investment at the end of 18 years.(b) If the $10,000 were put into a fund that was to produce the same final value after 18 years, what annualeffective rate would that fund have to offer?

Here, Purchase Amount (PV) is $10000 Time Period (Nper) is 18 years Effective Interest Rate for…

Answered: $10,000 is used to purchase an…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

A fund is built with annual payments increasing by $1 from $1 to $10 and then decreasing by $1 to $0. The first payment of $1 is made today. If the fund is used to purchase a ten-year level annuity with the first payment at twenty years from today, what is the amount of the level payment? (Assume an annual effective rate of interest of 4%.) Possible Answers A B D <$16 c≥ $17 but < $18 E ≥ $16 but < $17 ≥ $18 but < $19 ≥ $19
A student will receive a $25,000 grant at the beginning of every year for the next five years. Assuming an annual interest rate of 4% is appropriate, the present value of an ordinary annuity is 4.4518 x $25,000 = $111,295, and the present value of an annuity due is 4.6299 x $25,000 = $115,748. What is the fair value of the grant payments according to the Financial Accounting Standards Board (FASB)? $130,000 $115,748 $125,000 $111,295
Bright Inc. will be receiving $5,500 at the end of every month for the next 2 years. If these payments were directly invested into a fund earning 6.00% compounded semi-annually, what would be the future value of the fund at the end of 2 years? Round to the nearest cent
A fund to replace a deteriorating machine will be formed by depositing $2000 at the beginning of each 6 months for 7 years. If the fund accomulates at 7% compounded semi annually; how much is in it (a) at the end of 7 years (b) just after the 8th deposit; (c) just after the last deposit
The Cooper Foundation contributes $25,000 per year into an annuity fund for building a new zoo. The fund earns 7.5% interest. Find the amount in the fund at the end of 10 years. (Round your final answer to two decimal places.)
The State of Texas has a pension fund liability of $25 million, due in 10 years. Each year the legislature is supposed to set aside an annuity to arrive at this future value. This annuity is based on what the legislature believes it can earn on this money. Estimate the annuity needed each year for the next 10 years, assuming that the interest rate that can be earned on the money is 6%. $1,896,699 $3,657,129 $6,687,085 $4,675,987
Bright Inc. will be receiving $5,500 at the end of every month for the next 3 years. If these payments were directly invested into a fund earning 6.00% compounded semi- annually, what would be the future value of the fund at the end of 3 years? $0.00 Round to the nearest cent
2,500 is deposited into Fund X, which earns an annual effective rate of zero. At the end of each year, 10% of the balance is withdrawn from the fund. The annual withdrawals are deposited into Fund Y, which earns an annual effective rate of 10%. Determine the accumulated value of Fund Y at the end of year 10. a) 2,806 b) 2,252
A saver plans to make 25 deposits of 100 at the end of each year. If the interest rate were 6% effective per annum, he would accumulate a fund of amount F on the date of the last payment. The saver makes the first 10 deposits of 100. However, the account only credits an effective annual interest rate of 5%. Therefore, the saver determines that he must increase each of the remaining 15 deposits to X so that he can accumulate the desired fund of F. Assuming that the fund continues to earn 5% effective annual interest, find X.
If annual deposits of $1,000 are made into a fund paying 12% interest compounded annually, how much money will be in the fund immediately after the 5th deposit?
6) 10,000 is paid to buy an annuity-immediate with 10 level annual payments at an annual effective rate of 10%. The payments are deposited right away into a fund earning an annual effective rate of 9%. What is the total accumulated value of the investment at the end of the 10th year?
Theodore makes beginning of year deposits of 3000 for 10 years into a fund earning interest at an annual effective interest rate of 5%. At the end of each year, the interest earned is deposited into a second fund earning interest at an annual effective interest rate of 6%. Find the total accumulated value of his assets at the end of 10 years.

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