Bus650 Managerial Finance

Review the following:

Using your data an alternate computations

Part a -- 

$30,000 (1/1.07)^12 = $30,000 x .4440 = $13,322 or  $30,000 / (1.07)^12 = $30,000/ 2.2522 = $13,320 rounding  (part-a)

Part b

Determining the present value of a perpetuity – using your data

PMT x (1 / R)  Part (b) Pmt = Present value of Annuity divided by (Future value Interest Factor annuity at r, n)

$500 x (1/.06) = $500  x 16.6667 = $83,334 how large must the endowment be.5

PMT = Present value annuity divided Future value interest factor annuity at 6%, 50 years. (I used the future annuity table)

Pmt = $83,334 / 290.336 = $28.70 for the next 50 years.

Additional question:

You wish to purchase a home in five years from now and estimates that an initial down payment of $20,000 will be required at that time; and you wish to make equal annual end-of year deposits in an account paying annual interest of 4 percent, so what size annuity will result in a lump sum equal to $20,000 at the end of year 5.