Question

Pet need to pay his medical expenses. The current bill is 5000. Every year in the...

Pet need to pay his medical expenses. The current bill is 5000. Every year in the future the expense will increase by 7%. He will pay it for 52 years. Assume that the governing annual effective interest rate is 5%.

A) What kind of annuity is in question?

B)If he want to pay a single payment of all fee, how much should he pay?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a.

Annuity is defined as series of similar cash flow for specified limited period. There are two types of annuity, Ordinary annuity and annuity due. In the ordinary annuity payment is made at the end of the period and in the annuity due payment is made at the beginning of the year.

He pays medical bill at end of each year for next 52 year. So, this type of annuity is called Ordinary annuity.

b.

single payment of all fee, is present value of annuity discounted at 7%. So, ,present value of annuity is calculated in excel and screen shot provided below:

Present value of annuity that is single payment of all fee is $69,310.62.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Matt is considering purchasing one of two annuities. The first annuity, an ordinary annuity, will pay...
Matt is considering purchasing one of two annuities. The first annuity, an ordinary annuity, will pay $1,000 at the end of each quarter for 20 years. The second annuity, an annuity due, will pay $1,000 at the beginning of each quarter for 20 years. Which of the following statements is correct regarding these annuities? A. The present value of an ordinary annuity is equal to the present value of an annuity due. B. An ordinary annuity has a higher future...
Millhouse graduated 5 years ago with a degree in business administration and is currently employed as...
Millhouse graduated 5 years ago with a degree in business administration and is currently employed as a middle level manager for the same firecracker company his dad already worked for. His current annual salary of $60,000 has increased at an average rate of 5% per year and is projected to increase at that rate for the future. The firm has had a voluntary retirement savings program in place, whereby, employees can contribute up to 11% of their gross annual salary...
1. You want to take a vacation in 4 years and feel you’ll need $8,500 to...
1. You want to take a vacation in 4 years and feel you’ll need $8,500 to do so. If you can earn 5% on your deposits, how much will you need to deposit in each of the next four years to have the needed amount? PMT = 1972.10058   2. What is the effective annual rate on a credit card that states that their APR is 21%, compounded monthly? 23.144% 3. What is the present value of $1,000 to be received...
Millhouse graduated 5 years ago with a degree in business administration and is currently employed as...
Millhouse graduated 5 years ago with a degree in business administration and is currently employed as a middle level manager for the same firecracker company his dad already worked for. His current annual salary of $60,000 has increased at an average rate of 5% per year and is projected to increase at that rate for the future. The firm has had a voluntary retirement savings program in place, whereby, employees can contribute up to 11% of their gross annual salary...
Question 1 (Time Value of Money and WACC) (a) You need to pay off a car...
Question 1 (Time Value of Money and WACC) (a) You need to pay off a car loan within the next two years. The payment will be $4,000 every month. Today you have made a single deposit into a return-guaranteed investment account that will allow you to cope with all the monthly payments. This account earns an effective annual interest rate of 12.68250301%. The first payment will be made in one month. (i) Calculate the corresponding monthly rate for the investment...
Question 1 (25 marks/ Time Value of Money and WACC (a) You need to pay off...
Question 1 (25 marks/ Time Value of Money and WACC (a) You need to pay off a car loan within the next two years. The payment will be $4,000 every month. Today you have made a single deposit into a return-guaranteed investment account that will allow you to cope with all the monthly payments. This account earns an effective annual interest rate of 12.68250301%. The first payment will be made in one month. (i) Calculate the corresponding monthly rate for...
Question 1 (25 marks/ Time Value of Money and WACC) (a) You need to pay off...
Question 1 (25 marks/ Time Value of Money and WACC) (a) You need to pay off a car loan within the next two years. The payment will be $4,000 every month. Today you have made a single deposit into a return-guaranteed investment account that will allow you to cope with all the monthly payments. This account earns an effective annual interest rate of 12.68250301%. The first payment will be made in one month. (i) Calculate the corresponding monthly rate for...
I want the solution for both Q1 and Q2 By using appropriate annuity formula in Q1...
I want the solution for both Q1 and Q2 By using appropriate annuity formula in Q1 with explanations and details please Abdullah, who is age five. Mr. Ahmad earns $95,000 per year, but with the rising costs of education, their past contribution efforts have left them short of their financial goals. To estimate the amount of money Ahmad’s need to begin putting away for future security, some general information was obtained by their financial planner. The couple felt that the...
Assume that you are nearing graduation and have applied for a job with a local bank....
Assume that you are nearing graduation and have applied for a job with a local bank. As part of the bank’s evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses discounted cash flow analysis. See how you would do by answering the following questions. a. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2, (2) an ordinary annuity...
Geoffrey is the owner of a small grocery store, and is considering buying a car to...
Geoffrey is the owner of a small grocery store, and is considering buying a car to help him transport his wares. He has found a suitable used car online that he was able to negotiate to a price of $40,000. After doing a bit more research, he has found the following additional expenses involved in the purchase: Insurance and registration will cost $510 per year, payable at the start of each year Based on mileage estimates, petrol will cost $220...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT