PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 2, Problem 27PS
Summary Introduction
To determine: The number of years.
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Dear Financial Adviser,
My spouse and I are each 62 and hope to retire in three years. After retirement we will receive $7,600 per month after taxes from our
employers' pension plans and $1,600 per month after taxes from Social Security. Unfortunately our monthly living expenses are
$15,100. Our social obligations preclude further economies.
We have $1,010,000 invested in a high-grade, tax-free municipal-bond mutual fund. The return on the fund is 4.0% per year. We plan to
make annual withdrawals from the mutual fund to cover the difference between our pension and Social Security income and our living
expenses.
Sincerely,
Luxury Challenged
Marblehead, MA
You can assume that the withdrawals (one per year) will sit in a checking account (no interest) until spent. The couple will use the
account to cover the monthly shortfalls.
How many years before Luxury Challenged runs out of money?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Number of years
Dear Financial Adviser,
My spouse and I are each 62 and hope to retire in 3 years. After retirement we will receive $5,000 per month after taxes from our employers’ pension plans and $1,000 per month after taxes from Social Security. Unfortunately our monthly living expenses are $15,000. Our social obligations preclude further economies. We have $1,200,000 invested in a high-grade, municipal-bond mutual fund. However, the fund's annual after-tax return has dropped to 3.5%. We plan to make annual withdrawals from the mutual fund to cover the difference between our pension and Social Security income and our living expenses. How long will our money last?
Sincerely, Luxury Challenged
Marblehead, MA
You can assume that the withdrawals (one per year) will sit in a checking account (no interest) until spent. The couple will use the account to cover the monthly shortfalls.
How many years before Luxury Challenged runs out of money? (Do not round intermediate calculations. Round your answer to 2…
Your grandparents would like to establish a trust fund that will pay you and your heirs $185,000 per year forever with the first payment one year from today. If the trust fund earns an annual return of 3.6 percent, how much must your grandparents deposit today?
Multiple Choice:
$4,743,589.74
$4,282,407.41
$5,138,888.89
$4,496,527.78
$5,873,015.87
Chapter 2 Solutions
PRIN.OF CORPORATE FINANCE
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. 7SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Opportunity cost of capital Explain why we refer...
Ch. 2 - Prob. 3PSCh. 2 - Compound interest New Savings Bank pays 4%...Ch. 2 - Compound interest In 2017, Leonardo da Vincis...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Prob. 7PSCh. 2 - Future values In the five years preceding the end...Ch. 2 - Discount factors a. If the present value of 139 is...Ch. 2 - Prob. 10PSCh. 2 - Prob. 11PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 20PSCh. 2 - Prob. 21PSCh. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Prob. 24PSCh. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 26PSCh. 2 - Prob. 27PSCh. 2 - Prob. 28PSCh. 2 - Prob. 29PSCh. 2 - Annuities due A store offers two payment plans....Ch. 2 - Amortizing loans A bank loan requires you to pay...Ch. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 34PSCh. 2 - Growing annuities You are contemplating membership...Ch. 2 - Prob. 36PSCh. 2 - Growing perpetuities and annuities Your firms...Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Prob. 41PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Prob. 44PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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