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Exam 5: Time Value of Money

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Question 91

Multiple Choice

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What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?

A) $11,262.88
B) $11,826.02
C) $12,417.32
D) $13,038.19
E) $13,690.10

F) D) and E)
G) C) and E)

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Question 92

Multiple Choice

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Your uncle has $375,000 and wants to retire. He expects to live for another 25 years, and he also expects to earn 7.5% on his invested funds. How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the account?

A) $28,243.21
B) $29,729.70
C) $31,294.42
D) $32,859.14
E) $34,502.10

F) A) and C)
G) B) and D)

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Question 93

Multiple Choice

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Steve and Ed are cousins who were both born on the same day, and both turned 25 today. Their grandfather began putting $2,500 per year into a trust fund for Steve on his 20th birthday, and he just made a 6th payment into the fund. The grandfather (or his estate's trustee) Until now, the grandfather has been disappointed with Ed, hence has not given him anything. However, they recently reconciled, and the grandfather decided to make an equivalent provision for Ed. He will make the first payment to a trust for Ed today, and he has instructed his trustee to make 40 additional equal annual payments until Ed turns 65, when the 41st and final payment will be made. If both trusts earn an annual return of 8%, how much must the grandfather put into Ed's trust today and each subsequent year to enable him to have the same retirement nest egg as Steve after the last payment is made on their 65th birthday?

John and Daphne are saving for their daughter Ellen's college education. Ellen just turned 10 Then they plan to make 3 equal annual contributions in each of the following years, t = 5, 6, and 7. They expect their investment account to earn 9%. How large must the annual payments at t = 5, 6, and 7 be to cover Ellen's anticipated college costs?