Question

1.

a) Morgan Jennings, a geography professor, invests $85,000 in a parcel of land that is expected to increase in value by 14 percent per year for the next five years. He will take the proceeds and provide himself with a 20-year annuity.

Assuming a 14 percent interest rate, how much will this annuity be? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

b) Cal Lury owes $28,000 now. A lender will carry the debt for seven more years at 8 percent interest. That is, in this particular case, the amount owed will go up by 8 percent per year for seven years. The lender then will require that Cal pay off the loan over the next 15 years at 11 percent interest.

What will his annual payment be?  (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Answer 1

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Answer:

1)

20 year Ordinary Annuity payments=85000*1.14^5*0.14/(1-1/1.14^20)=$24,710.41

2)

Loan at the end of 7 years = 28000*(1.08)^7 = 47987.07953

This will be equal to PV = 47987.07953

number of years (N) = 15 years

Interest (1/Y) = 11%

FV =0

Put these values in the calculator

then click CPT

enter PMT click

annual payment (PMT) = $6673.33