QUESTION6 You invest in a company that is offering a 7 retur

QUESTION6 You invest in a company that is offering a 7% return on your investment compounded yearly, you invest tesoo at the end of each year for 25 years. What will be the future worth or value of your stake in this company after 25 years ? Give your answer in dollars only After 25 years you decide to withdraw money from the company over a period of 30 years, while still earning 7% interest.compounded yearly If you want to have one withdrawal at the end of each year for 30 years what will be the maximum you can withdraw each year ? Give your answer in dollars only QUESTION 7 The folowing set of cash flows occur for a retirement account earning at an interest rate of 79 Year 0 123 45 678910 cash Flow raw 510k 59.5k $9.0k 58.5k 58.0k $7 5K $70k 56.5k s6,0k 555k 55.0k Note that this cash flow involves a gradient and uniform series future worth of thie cash flow at year 10? Give your answer in dollars and ignore cents in the anewer, do not enter units or dollar signs.

Solution

Question 6

Yearly deposits = $8,500

Deposit for 25 years.

Return of investment = 7%

Future Value at 25^th year = $8,500 (F/A, 7%, 25)

Future Value at 25^th year = $8,500 (63.2490)

Future Value at 25^th year = $537,617

This amount at 25^th year you decided to withdraw over a period of 30 years earning 7% rate of interest.

The withdrawal will be at the end of each year for 30 years.

Then the annual withdrawal over a period of 30 years

A = P (A/P, 7%, 30)

[Note – The future value at the end of 25^th year as calculated above will be considered as P]

A = $537,617 (A/P, 7%, 30)

A = $537,617 (0.0806) = $43,332

Question 7

Year

1

2

3

4

5

6

7

8

9

10

Cash Flow

10,000

9,500

9,000

8,500

8,000

7,500

7,000

6,500

6,000

5,500

As this is a gradient series, first compensate all the gradients and convert into uniform cash flow. Rate of interest is 7%.

A = A1 – G (A/G, 7%, 10)

A = 10,000 – 500 (3.9461)

A = 11,973

Future Value = A (F/A, 7%, 10)

Future Value = 11,973 (13.8164)

Future Value = 165,424

Year	1	2	3	4	5	6	7	8	9	10
Cash Flow	10,000	9,500	9,000	8,500	8,000	7,500	7,000	6,500	6,000	5,500