BUSI 320 Comprehensive Problem 3 2018 Summer Use what you have learned about the time value of...

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BUSI 320 Comprehensive Problem 3 2018Summer
Use what you have learned about the time value of money toanalyze each of the following decisions:
Decision #1:   Which set of Cash Flows isworth more now?
Assume that your grandmother wants to give you generousgift. She wants you to choose which one of the following sets ofcash flows you would like to receive:
Option A: Receive a one-time gift of $ 7500 today.
Option B: Receive a $1000 gift each year for the next 10years. The first $1000 would be received 1 year fromtoday.
Option C: Receive a one-time gift of $15,000 10 yearsfrom today.
Compute the Present Value of each of these optionsif you expect the interest rate to be 3% annually for the next 10years.    Which of these options does financialtheory suggest you should choose?
       Option A would be worth$__ today.
       Option B would be worth$ today.
       Option C would be worth$ today.
       Financial theory supportschoosing Option _

Compute the Present Value of each of these optionsif you expect the interest rate to be 7% annually for the next 10years. Which of these options does financial theory suggest youshould choose?
       Option Awould be worth $ today.
       Option B would be worth$ today.
       Option C would be worth$ today.
      Financial theory supportschoosing Option _
Compute the Present Value of each of these optionsif you expect to be able to earn 10% annually for the next 10years. Which of these options does financial theory suggest youshould choose?
       Option Awould be worth $__ today.
       Option B would be worth$ today.
       Option C would be worth$ today.
       Financial theory supportschoosing Option _
Decision #2: Planning forRetirement
Luke and Olivia are 22, newly married, and ready to embark onthe journey of life.   They both plan to retire 45 yearsfrom today. Because their budget seems tight right now, they hadbeen thinking that they would wait at least 10 years and then startinvesting $2100 per year to prepare for retirement. Olivia justtold Luke, though, that she had heard that they would actually havemore money the day they retire if they put $2100 per year away forthe next 10 years - and then simply let that money sit for the next35 years without any additional payments – then they would haveMORE when they retired than if they waited 10 years to startinvesting for retirement and then made yearly payments for 35 years(as they originally planned to do).
Please help Luke and Olivia make an informeddecision:
Assume that all payments are made at the END a year(or month), and that the rate of return on all yearly investmentswill be 7.2% annually.
How much money will Luke and Olivia have in 45 years if they donothing for the next 10 years, then put $2100 per yearaway for the remaining 35 years?
How much money will Luke and Olivia have in 10 years if theyput $2100 per year away for the next 10 years?
b2) How much will that amount you just computed grow to if itremains invested for the remaining 35 years, but without anyadditional yearly deposits being made?
How much money will Luke and Olivia have in 45 years if theyput $2100 per year away for each of the next 45 years?
How much money will Luke and Olivia have in 45 years if theyput away $175 per MONTH at the end ofeach month for the next 45 years? (Remember to adjust7.2% annual rate to a Rate per month!)
If Luke and Olivia wait 25 years (after the kids are raised!)before they put anything away for retirement, how much will they toput away ***at the end of* *each year***for 20 years in order to have $1,000,000 saved up on the first dayof their retirement 45 years from today?

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As per rules I am answering the first 4 subparts of thequestion1 Select Option CDecision See Answer

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Transcribed Image Text

BUSI 320 Comprehensive Problem 3 2018SummerUse what you have learned about the time value of money toanalyze each of the following decisions:Decision #1: Which set of Cash Flows isworth more now?Assume that your grandmother wants to give you generousgift. She wants you to choose which one of the following sets ofcash flows you would like to receive:Option A: Receive a one-time gift of $ 7500 today. Option B: Receive a $1000 gift each year for the next 10years. The first $1000 would be received 1 year fromtoday. Option C: Receive a one-time gift of $15,000 10 yearsfrom today.Compute the Present Value of each of these optionsif you expect the interest rate to be 3% annually for the next 10years. Which of these options does financialtheory suggest you should choose? Option A would be worth$__________ today. Option B would be worth$__________ today. Option C would be worth$__________ today. Financial theory supportschoosing Option _______ Compute the Present Value of each of these optionsif you expect the interest rate to be 7% annually for the next 10years. Which of these options does financial theory suggest youshould choose? Option Awould be worth $__________ today. Option B would be worth$__________ today. Option C would be worth$__________ today. Financial theory supportschoosing Option _______Compute the Present Value of each of these optionsif you expect to be able to earn 10% annually for the next 10years. Which of these options does financial theory suggest youshould choose? Option Awould be worth $__________ today. Option B would be worth$__________ today. Option C would be worth$__________ today. Financial theory supportschoosing Option _______Decision #2: Planning forRetirementLuke and Olivia are 22, newly married, and ready to embark onthe journey of life. They both plan to retire 45 yearsfrom today. Because their budget seems tight right now, they hadbeen thinking that they would wait at least 10 years and then startinvesting $2100 per year to prepare for retirement. Olivia justtold Luke, though, that she had heard that they would actually havemore money the day they retire if they put $2100 per year away forthe next 10 years - and then simply let that money sit for the next35 years without any additional payments – then they would haveMORE when they retired than if they waited 10 years to startinvesting for retirement and then made yearly payments for 35 years(as they originally planned to do). Please help Luke and Olivia make an informeddecision: Assume that all payments are made at the END a year(or month), and that the rate of return on all yearly investmentswill be 7.2% annually.How much money will Luke and Olivia have in 45 years if they donothing for the next 10 years, then put $2100 per yearaway for the remaining 35 years?How much money will Luke and Olivia have in 10 years if theyput $2100 per year away for the next 10 years?b2) How much will that amount you just computed grow to if itremains invested for the remaining 35 years, but without anyadditional yearly deposits being made?How much money will Luke and Olivia have in 45 years if theyput $2100 per year away for each of the next 45 years?How much money will Luke and Olivia have in 45 years if theyput away $175 per MONTH at the end ofeach month for the next 45 years? (Remember to adjust7.2% annual rate to a Rate per month!)If Luke and Olivia wait 25 years (after the kids are raised!)before they put anything away for retirement, how much will they toput away at the end of each yearfor 20 years in order to have $1,000,000 saved up on the first dayof their retirement 45 years from today?