Carl Reardon has an investment (Graded A+) - use as a guide only - 25981

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Round all answers to three decimal places.



Question 1

Carl Reardon has an investment which will pay him the following payments at the end of each of the next five years: $1,000, $2,000, $3,000, $4,000 and $4,500.


He will then receive an annuity of $5,000 from the end of the 6th year until the end of the 10th year inclusive.


If he is offered a buyout now, what amount should he accept assuming a required annual rate of return of 4 percent?


Question 2

Secure Systems Corporation (SSC), a manufacturer of electronic surveillance equipment, is considering selling the rights to market its home security system through the Home Depot chain.


The proposed deal with Home Depot calls for SSC to receive payments of $35,000 and $25,000 at the end of years 1 and 2. Annual payments of $18,000 at the end of years three through nine inclusive will also occur. A final payment of $12,000 will be made at the end of the year ten.


Kent Building Supplies is also interested and will pay $125,000 today for the rights to market the system.


Which offer should Secure Systems Corporation accept assuming SSC’s cost of capital is 4%? Show all calculations.


Question 3

Electric Corporation wants to withdraw $30,000 from an account at the end of each year for five years.  What should be the required initial investment at the beginning of the first year if the fund earns 6% compounded annually?


Question 4

If you borrow $31,236 today and are required to pay back the loan by making seven equal annual payments of $6,000, what is the interest rate associated with this loan? Assume annual compounding/discounting.






Question 5

Betty Knight is planning to retire in 25 years, at which time she hopes to have accumulated enough money to receive an annuity of $30,000 a year for 20 years of retirement.


During her pre-retirement period she expects to earn 5 percent compounded annually. During retirement she expects to earn 4 percent compounded annually on her money.


What annual contribution to her retirement fund is required to meet her objective of having $30,000 a year for 20 years during retirement?


Question 6

You have just received a loan from your bank for $19,000 and you will use it to buy a car. The interest rate is 6 percent and the term of the loan is 6 years.


You will make 6 equal annual payments over the six years beginning one year from the day you signed the loan.


How much is your annual year-end payment?

Prove your answer by preparing an amortization chart.



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Assignment2 (1) SOF.docx
Assignment2 (1)...