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Finance

Your Answers: Type your answers in the table and submit thisworksheet.
Use what you have learned about the time value of money toanalyze each of the following decisions:
Decision #1: Which set of Cash Flows is worth more now? Assumethat your grandmother wants to give you generous gift. She wantsyou to choose which one of the following sets of cash flows youwould like to receive: Option A: Receive a one-time gift of $10,000today. Option B: Receive a $1600 gift each year for the next 10years. The first $1600 would be received 1 year from today. OptionC: Receive a one-time gift of $20,000 10 years from today. Computethe Present Value of each of these options if you expect theinterest rate to be 3% annually for the next 10 years. Which ofthese options does financial theory suggest you should choose?
1. Option A would be worth $__ today.
2. Option B would be worth $ today.
3. Option C would be worth $ today.
4. Financial theory supports choosing Option _ Compute thePresent Value of each of these options if you expect the interestrate to be 7% annually for the next 10 years. Which of theseoptions does financial theory suggest you should choose?
5. Option A would be worth $ today. 6
. Option B would be worth $ today.
7. Option C would be worth $ today.
8. Financial theory supports choosing Option _ Compute thePresent Value of each of these options if you expect to be able toearn 10% annually for the next 10 years. Which of these optionsdoes financial theory suggest you should choose?
9. Option A would be worth $__ today.
10. Option B would be worth $ today. 1
1. Option C would be worth $ today.
12. Financial theory supports choosing Option _
Decision #2: Planning for Retirement Tom and Tricia are 22,newly married, and ready to embark on the journey of life. Theyboth plan to retire 45 years from today. Because their budget seemstight right now, they had been thinking that they would wait atleast 10 years and then start investing $2400 per year to preparefor retirement. Tricia just told Tom, though, that she had heardthat they would actually have more money the day they retire ifthey put $2400 per year away for the next 10 years—and then simplylet that money sit for the next 35 years without any additionalpayments—than they would have if they waited 10 years to startinvesting for retirement and then made yearly payments for 35 years(as they originally planned to do). Help Tom and Tricia make aninformed decision. Assume that all payments are made at the end ofa year, and that the rate of return on all yearly investments willbe 9% annually. (Please do NOT ROUND when entering “Rates” for anyof the questions below)
a) How much money will Tom and Tricia have in 45 years if theydo nothing for the next 10 years, then put $2400 per year away forthe remaining 35 years?
b) How much money will Tom and Tricia have in 10 years if theyput $2400 per year away for the next 10 years?
c) How much will the amount you just computed grow to if itremains invested for the remaining 35-years, but without anyadditional yearly deposits being made?
d) How much money will Tom and Tricia have in 45 years if theyput $2400 per year away for each of the next 45 years?
e) How much money will Tom and Tricia have in 45 years if theyput away $200 per MONTH at the end of each month for the next 45years? (Remember to adjust the 9% annual rate to a Rate per month!)(Round this rate per month to 5 places past the decimal.) exampleof rounding: .062134 = .06213 or 6.213%
f) If Tom and Tricia wait 25 years (after the kids are raised!)before they put anything away for retirement, how much will theyhave to put away at the end of each year for 20 years in order tohave $1,200,000 saved up on the first day of their retirement 45years from today?

Answer & Explanation Solved by verified expert

3.6 Ratings (447 Votes)

1 optionA At T zero 10000 2 option B PVIFA103 1 0970874 1600 1553398 2 0942596 1600 1508153 3 0915142 1600 1464227 4 0888487 1600 1421579 5 0862609 1600 1380174 6 0837484 1600 1339975 7 0813092 1600 1300946 8 0789409 1600 1263055 9 0766417 1600 1226267 10 0744094 1600 119055 8530203 1364832 3option C PVIF103 0744094 PV of 20000 after 10 years 200000744094 1488188 4 See Answer

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Your Answers: Type your answers in the table and submit thisworksheet.Use what you have learned about the time value of money toanalyze each of the following decisions:Decision #1: Which set of Cash Flows is worth more now? Assumethat your grandmother wants to give you generous gift. She wantsyou to choose which one of the following sets of cash flows youwould like to receive: Option A: Receive a one-time gift of $10,000today. Option B: Receive a $1600 gift each year for the next 10years. The first $1600 would be received 1 year from today. OptionC: Receive a one-time gift of $20,000 10 years from today. Computethe Present Value of each of these options if you expect theinterest rate to be 3% annually for the next 10 years. Which ofthese options does financial theory suggest you should choose?1. Option A would be worth $__________ today.2. Option B would be worth $__________ today.3. Option C would be worth $__________ today.4. Financial theory supports choosing Option _______ Compute thePresent Value of each of these options if you expect the interestrate to be 7% annually for the next 10 years. Which of theseoptions does financial theory suggest you should choose?5. Option A would be worth $__________ today. 6. Option B would be worth $__________ today.7. Option C would be worth $__________ today.8. Financial theory supports choosing Option _______ Compute thePresent Value of each of these options if you expect to be able toearn 10% annually for the next 10 years. Which of these optionsdoes financial theory suggest you should choose?9. Option A would be worth $__________ today.10. Option B would be worth $__________ today. 11. Option C would be worth $__________ today.12. Financial theory supports choosing Option _______Decision #2: Planning for Retirement Tom and Tricia are 22,newly married, and ready to embark on the journey of life. Theyboth plan to retire 45 years from today. Because their budget seemstight right now, they had been thinking that they would wait atleast 10 years and then start investing $2400 per year to preparefor retirement. Tricia just told Tom, though, that she had heardthat they would actually have more money the day they retire ifthey put $2400 per year away for the next 10 years—and then simplylet that money sit for the next 35 years without any additionalpayments—than they would have if they waited 10 years to startinvesting for retirement and then made yearly payments for 35 years(as they originally planned to do). Help Tom and Tricia make aninformed decision. Assume that all payments are made at the end ofa year, and that the rate of return on all yearly investments willbe 9% annually. (Please do NOT ROUND when entering “Rates” for anyof the questions below)a) How much money will Tom and Tricia have in 45 years if theydo nothing for the next 10 years, then put $2400 per year away forthe remaining 35 years?b) How much money will Tom and Tricia have in 10 years if theyput $2400 per year away for the next 10 years?c) How much will the amount you just computed grow to if itremains invested for the remaining 35-years, but without anyadditional yearly deposits being made?d) How much money will Tom and Tricia have in 45 years if theyput $2400 per year away for each of the next 45 years?e) How much money will Tom and Tricia have in 45 years if theyput away $200 per MONTH at the end of each month for the next 45years? (Remember to adjust the 9% annual rate to a Rate per month!)(Round this rate per month to 5 places past the decimal.) exampleof rounding: .062134 = .06213 or 6.213%f) If Tom and Tricia wait 25 years (after the kids are raised!)before they put anything away for retirement, how much will theyhave to put away at the end of each year for 20 years in order tohave $1,200,000 saved up on the first day of their retirement 45years from today?