Question

3.

XYZ has an investment worth $56,000. The investment will make a special, extra payment of X to XYZ in 2 years from today. The investment also will make regular, fixed annual payments of $12,000 to XYZ with the first of these payments made to XYZ in 1 year from today and the last of these annual payments made to XYZ in 5 years from today. The expected return for the investment is 12.3 percent per year. What is X, the amount of the special payment that will be made to XYZ in 2 years?

a.

An amount less than $10,000 or an amount equal to or greater than $30,000

b.

An amount equal to or greater than $10,000 but less than $17,000

c.

An amount equal to or greater than $17,000 but less than $22,000

d.

An amount equal to or greater than $22,000 but less than $26,000

e.

An amount equal to or greater than $26,000 but less than $30,000

Answer 1

Value of Investment = PV of Cfs from it.

PV CFs other than Special Pyt:

Year	CF	PVF @12.3%	PV of CFs
1	$ 12,000.00	0.8905	$ 10,685.66
2	$ 12,000.00	0.7929	$   9,515.28
3	$ 12,000.00	0.7061	$   8,473.09
4	$ 12,000.00	0.6288	$   7,545.05
5	$ 12,000.00	0.5599	$   6,718.66
PV of CFs			$ 42,937.75

PV of Special Pyt = CF * PVF(r%, n)

= X * PVF(12.3%, 2 )

= X * 0.7929

= 0.7929X

Thus 0.7929X + 42937.75 = 56000

0.7929X = 56000 - 42937.75

= 13062.25

X = 13062.25 / 0.7929

= $ 16473.18

OPtion C is correct. ( As Next available amount > 16473 is 17000)