Question

You will receive $3,000 a year, for fifteen years at an opportunity cost of 6%. What is the PVAF?

A. $29,136.747 B. $69,827.91 C. 0.943 D. 9.712

You invest in annuity paying $4,000 a year, to receive $250,000 in twenty years. What rate of return will you have earned?

A. 10.766% B. 9.037% C. 62.5% D. Cannot compute

Zana has a money market account that earns 1.2% interest. She wants to purchase a matched pair of French Bull Dogs for $3,600. How much must she set aside (invest) monthly so that she can buy them in two years?

A. $133.465 B. $169.465 C. $150 D. $149.173

Answer 1

1. Present Value annuity factor (PVAF) = [( 1 - ( 1+R)^-N]/R

Where, R = rate of interest

N = Number of payments

= [1- ( 1+6%)^-15]/6%

= (1 - 0.41726506073)/0.06

= 9.71224898783

Option D is the correct answer

2. Future Value of annuity = P * [(1+R)^N -1]/R

Where,

R = rate of interest

N = Number of payments

P = payments

250,000 = 4000 * [( 1 +R)^20/R]

250000/4000 = [( 1 +R)^20/R]

62.5 = [( 1 +R)^20/R]

Now, Using trial and error method

We will put R = 9.037%

62.50 = [( 1+ 9.037%)^20/ 9.037%

62.50 = 62.50

Both Sides are equal when R = 9.037%

So, the answer is 9.037%

3.

Future Value of annuity = P * [(1+R)^N -1]/R

Where,

R = rate of interest

N = Number of payments

P = payments

3600 = P * [( 1 + 1.2%/12)^12*2 - 1]/(1.2%/12)

3600 = P * (1.024133 - 1)/0.001

3600 = P * 24.133

P = 3600 / 24.133

P = 149.173

So, The correct answer is 149.173