please show me how you get the answer, I don't want to copy it I actually want to learn so I can continue to do well in the class. I will award points for the best answer. Thank you all.
21. A father has decided to set aside a one time lump sum for college that will amount to $ 60,000 by the time his 5 year old is 18 years old (13 years). Use 8% as the rate. Figure the dollar amount to put in the fund assuming no further investments will be made. How much must he invest right now to amount to $ 60,000 in 13 years?
37. You win a judgment in an auto accident for $ 275,000. You will immediately receive $ 135,000 in cash, but must pay your lawyer's fee of $ 91,666 out of that sum. In addition you will receive $ 5,500 per year for 20 years for a total of $ 110,000 after which the balance owed of $ 30,000 will be paid. If the interest rate is 7 percent, what is the current value of your settlement?
Answer by --r--
the first problem is just a simple problem of finding the PRESENT VALUE(PV) given the FUTURE VALUE(FV) and RATE(i)
Using the formula
PV = [FV/(1+i)^n] then
Let
FV = 60000
i = 0.08
n = 13
PV = 60000 / (1+.08)^13
the Answer is 22061.875
The next problem is a combination of finding the PRESENT VALUE(PV), given an ANNUITY(A), FUTURE VALUE(FV), and PRESENT VALUE(PV)
Let
PV = PV1 + PV2 + PV3
PV1: (Just subtract the two given)
PV1 =135000 - 91666 = 43334
PV2: (Use the PRESENT VALUE formula given the ANNUITY)
PV = (A/i) * {1 - [1/(1+i)^n]}
Let
Annuity = 5500
n = 20
i = 0.07
PV2 = (5500/0.07) * {1-[1/(1+.07)^20]} = 58267.078
PV3 = (Use the PRESENT VALUE formula given the FUTURE VALUE, same as problem 21)
PV = [FV/(1+i)^n]
Let
FV = 30000
i = 0.07
n = 20
PV3= 30000 / (1+.07)^20 = 7752.570
Then the answer is
PV = PV1 + PV2 + PV3
PV = 43334 +58267.078 + 7752.570
PV = 109353.648
What do you think? Answer below!
Orignal From: HW help, don't understand these 2 finance questions at ALL. errr, really frustrated please help me!?
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