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Exam 13: Annuities Due, deferred Annuities, and Perpetuities

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Question 31

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Dell Canada advertises a computer bundle including printer,router and home network attached storage for $2995.The same system bundle may be leased for 24 months at $130 per month,at the beginning of each month.At the end of the lease,the bundle may be purchased for 10% of its retail price.What is the economic cost of the lease or purchase in present value,if a two year loan can be obtained at 12% compounded annually to purchase the computer?

A) Lease is better by $48.64
B) Purchase is better by $48.64
C) Lease is better by $109.38
D) Purchase is better by $109.38
E) Both options are the same.

F) B) and C)
G) D) and E)

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Question 32

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How many months will it take to accumulate $17 897.20 at 5.87% compounded semi-annually,if $1140.00 is deposited in an account at the beginning of every 6 months?

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FV_n (due)= 17897.20 = 1140.00 ...

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Question 33

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What deposit made at the beginning of each month will accumulate to $36 000.00 at 5% compounded quarterly at the end of eight years?

A property was purchased for quarterly payments of $3000.00 for 10 years.If the first payment was made on the date of purchase and interest is 6% compounded annually,what was the purchase price of the property?

Flin Flon Aqua Club bought swimming equipment on a contract requiring monthly payments of $815.50 for 4 years beginning 11 months after the date of purchase.What was the cash value of the equipment if interest is 7.8% compounded monthly?

Basim purchased a deferred annuity from an insurance company for $10 971.The money used to purchase the annuity will earn 6% quarterly.The annuity will provide 16 quarterly payments of $1000.If the first payment is to be received on October 1,2017,when did Basim purchase the deferred annuity?

Mr.Dawson wants to receive payments of $1230.00 at the beginning of every three months for 19 years starting on the date of his retirement.If he retires in 21 years,how much must he deposit in an account at the beginning of every three months if interest on the account is 6.84% compounded quarterly?

Goggle Inc.is planning to pay a quarterly dividend of $0.50 on its perpetual preferred share.The market requires a dividend yield of 5% compounded annually on preferred shares of similar risks.What is the fair market value of its perpetual preferred share just after payment of a dividend at the end of the quarter?

Note: The calculations for this question were done using Excel's RATE function. A vacation property valued at $62 000.00 was bought for 40 payments of $2150.00 due at the beginning of every six months.What nominal rate of interest was charged?

If you want to be able to set up a scholarship fund that will last forever and you feel that you can earn 4.8% compounded annually.How much money do you have to deposit today in order to be able to provide 6 scholarships of $3000 each?

How much does a depositor have to save at the beginning of every 6 months for eleven years to accumulate $17 448.00 if interest is 6.25% compounded semi-annually?

Sue won a "Millionaire Life" lottery.As a winner of the Grand Prize,she can choose either $1 million per year for 25 years or a single cash payment of $17 million.What option should be chosen if the payments are made at the beginning of each year and on low risk investments,money can earn 3.2% compounded annually?

Mike acquired his sister's share of their business by agreeing to make payments of $4711.00 at the end of each year for 8 years.If the payments are deferred for three years and money is worth 5.96% compounded quarterly,what is the cash value of the sister's share of the business?

Starting three months after her grandchild Crystal's birth,Mrs.Robinson made deposits of $63.25 into a trust fund every three months until Crystal was 19 years old.The trust fund provides for equal withdrawals at the end of each quarter for 5 years beginning three months after the last deposit.If interest is 8.24% compounded quarterly,how much will Crystal receive every three months?

National Research Council is considering the establishment of $2 million endowment held in perpetuity of a Visiting Professor chair at UOIT.The ongoing cost will be $12 500 at the end of each month.What monthly compounded nominal rate of return must be earned to fully fund the position?

Starting in 5 years and 6 months you want to be able to withdraw $950 every three months for 3 years and 3 months.You want to deposit a single amount immediately and then let it grow at a rate of 7.24% compounded quarterly.How much interest did you earn during the entire period of time?

Roxanne contributes $167.00 at the beginning of every six months into an RRSP paying interest at 8.9% compounded semi-annually. a)How much will her RRSP deposits amount to in 31.5 years? b)How much of the amount will be interest?

Note: The calculations for this question were done using Excel's RATE function. What is the effective rate of interest charged on a lease valued at $17 040.00 if payments of $1180.00 are made at the beginning of each 3 months for four years?

Jenni intends to retire in 50 years and would like to receive $3000.00 every month for 10 years starting on the date of her retirement.How much must she deposit in an account today if interest is 12% compounded annually?

What semi-annual payment must be made into a fund at the beginning of every six months to accumulate to $4800.00 in ten years at 7% compounded semi-annually?