Question

When Marilyn Monroe died, ex-husband Joe DiMaggio vowed to place fresh flowers on her grave every Sunday as long as he lived. The week after she died in 1962, a bunch of fresh flowers that the former baseball player thought appropriate for the star cost about $6. Based on actuarial tables, "Joltin' Joe" could expect to live for 28 years after the actress died. Assume that the EAR is 11.4 percent. Also, assume that the price of the flowers will increase at 4.3 percent per year, when expressed as an EAR. Assuming that each year has exactly 52 weeks, what is the present value of this commitment? Joe began purchasing flowers the week after Marilyn died.(Do not round your intermediate calculations. )$3,785.41 $4,183.88 $3,865.11 $3,984.65 $4,104.18

Answer 1

Initial Cost of flower = $6

Number of week he place flower = 28 × 52

= 1,456 week.

Effective annual rate = 11.40%

Weekly rate = 11.40% / 52

= 0.22%

Annual Growth rate = 4.30%

Weekly growth rate = 4.30% / 52

= 0.083%

Now, Present value of growing annuity is calculated below: