Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 2, Problem 20PS
Summary Introduction
To determine: The income person B receive each year.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Solve the question
James plans to fund his individual retirement account, beginning today, with 20 annual deposits of $2,000, which he will continue for the next 20 years. If he can earm an annual compound rate of 8 percent on his deposits, the amount in the account upon retirement will be……
Questions:-
John wishes to create his own life annuity plan. He expects to retire at
age 60. He plans to deposit a fixed amount of money in a retirement
account each year starting from age 30. Assume all amounts are
deposited or withdrawn at the end of the year. Suppose the account
can earn an annual rate of 5%.
1.
(a) If John wants to withdraw $120,000 each year starting from age 60
for the next 20 years, calculate the amount that should be
accumulated in the retirement account at age 60.
(7%)
(b) Calculate the fixed amount of money that John requires to deposit per
year for 30 years, starting from age 30 to accumulate the amount (8%)
calculated in part (a).
(c)
In the past 5 years, Industrial and Commercial Bank of China (ICBC)
has offered a stable dividend distribution of HK$0.26 per share each
year. What is the annual rate of return of this investment if you can (5%)
buy ICBC share at $5.2 in the market?
(d) John wishes to invest in shares to create his life annuity plan. What
are…
9. Implied interest rate and period
Consider the case of the following annuities, and the need to compute either their expected rate of return or duration.
Joshua inherited an annuity worth $6,830.77 from his uncle. The annuity will pay him eight equal payments of $1,100 at the end of each year. The
annuity fund is offering a return of
Joshua's friend, willie, has hired a financial planner for advice on retirement. Considering Willie's current expenses and expected future lifestyle
changes, the financial planner has stated that once Willie crosses a threshold of $1,387,311 in savings, he will have enough money for retirement.
Willie has nothing saved for his retirement yet, so he plans to start depositing $25,000 in a retirement fund at a fixed rate of 6.00% at the end of each
year. It will take
v for Willie to reach his retirement goal.
Chapter 2 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 8SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Discount factors If the PV of 139 is 125, what is...
Ch. 2 - Prob. 3PSCh. 2 - Prob. 4PSCh. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 8PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values A machine costs 380,000 and is...Ch. 2 - Opportunity cost of capital Explain why we refer...Ch. 2 - Present values A factory costs 400,000. It will...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Prob. 19PSCh. 2 - Prob. 20PSCh. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 31PSCh. 2 - Prob. 32PSCh. 2 - Prob. 33PSCh. 2 - Prob. 34PSCh. 2 - Prob. 35PSCh. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Prob. 37PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Funding a retirement goal. Austin Miller wishes to have 800,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump-sum deposit today. a. If upon retirement in 20 years, Austin plans to invest 800,000 in a fund that earns 4 percent, what is the maximum annual withdrawal he can make over the following 15 years? b. How much would Austin need to have on deposit at retirement in order to withdraw 35,000 annually over the 15 years if the retirement fund earns 4 percent? c. To achieve his annual withdrawal goal of 35,000 calculated in part b, how much more than the amount calculated in part a must Austin deposit today in an investment earning 4 percent annual interest?arrow_forwardAmount of an Annuity John Goodheart wishes to provide for 6 annual withdrawals of 3,000 each beginning January 1, 2029. He wishes to make 10 annual deposits beginning January 1, 2019, with the last deposit to be made on January 1, 2028. Required: If the fund earns interest compounded annually at 10%, how much is each of the 10 deposits?arrow_forwardYou want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years? A. future value of one dollar ($1) B. present value of one dollar ($1) C. future value of an ordinary annuity D. present value of an ordinary annuityarrow_forward
- Annuity A. Edward purchased an annuity for $30,000. The annuity will pay Edward $700 per month for 10 years. What is the exclusion ratio? How much is excluded each year? How much is taxable each year? B. Edward purchased an annuity for $120,000 when he was 64 that would pay him $700 per month for the rest of his life. What is the expected return from the contract?arrow_forwardour father is about to retire, and he wants to buy an annuity that will provide him with $93,000 of income a year for 25 years, with the first payment coming immediately. The going rate on such annuities is 5.70%. How much would it cost him to buy the annuity today? a. $1,293,250.21 b. $1,245,515.73 c. $1,316,510.13 d. $1,631,578.95 e. $1,223,510.13arrow_forwardIra Roth opens up a Roth IRA and places $4,500 in his retirement account at the beginning of each year for 20 years. He believes the account will earn 8 percent interest per year, compounded quarterly. How much will he have in his retirement account in 20 years?arrow_forward
- 1. Your financial planner has advised you to initiate a retirement account while you are still young. Today is your 35th birthday and you are planning to retire at age 65. Actuarial tables show that individuals in your age group have a life expectancy of about 75. If you want a $50,000 annuity beginning on your 66th birthday which will grow at a rate of 4 percent per year for 10 years: a. What amount must you deposit at the end of each year through age 65 at a rate of 8 percent compounded annually to fund your retirement account? b. How would your answer change if the rate is 9 percent? ¢. After you have paid your last installment on your 65th birthday, you learn that medical advances have shifted actuarial tables so that you are now expected to live to age 85. Determine the base-year annuity payment supportable under the 4 percent growth plan with a 9 percent interest rate.arrow_forwardGinger Rogers deposits $3,000 a year into her retirement account. If these funds have an average earning of 8 percent over the 40 years until her retirement, what will be the value of her retirement account?arrow_forwardExcel Online Structured Activity: Required annuity payments Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $55,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 5%. He currently has $65,000 saved, and he expects to earn 8% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations. Round your answer to the nearest cent.…arrow_forward
- Excel Online Structured Activity: Required annuity payments Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $60,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 3%. He currently has $160,000 saved, and he expects to earn 7% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations. Round your answer to the nearest…arrow_forwardExcel Online Structured Activity: Required annuity payments Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. (The real value of his retirement income will decine annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 6%. He currently has $245,000 saved, and he expects to earn 8% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations. Round your answer to the nearest cent.…arrow_forwardK A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 8% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 12% 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? 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)arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
PFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
PFIN (with PFIN Online, 1 term (6 months) Printed...
Finance
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning