Jamie Lyons
Finance
W2

4-1 Questions

Annuity-A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.

Lump-sum payment- A one-time payment for the total or partial value of an asset.

Cash flow- A revenue or expense stream that changes a cash account over a given period

Uneven cash flow stream- Any series of cash flows that doesn’t conform to the definition of an annuity is considered to be an uneven cash flow stream.

4-1 problem

Solve for FV
10,000 × (1.10)5 power 10,000 × 1.6105
16,105.10

4-2

At = A0 * (1+r/100m)^mt

At= 5000
A0 =? r= 7%, m = 1 t = 20

Answer =$1,292.10

4-3

(FV) = 1,000,000 (PV) = 250,000
(n) = 18 years (i) = ?

1,000,000 = 250,000 (1 + i)15 power

= .801%

4-4

i = 6.5% n =?
PV = 1000
FV =2000

1000 = 2000 / (1+0.065)n power
(1.065)n power=2
I put 11 in for n
11.01

4-6

S = R(((1 + i)n - 1) / i) *(1 + i)
$300(((1 + .07)n - 1)/.07)

S = $1725.22 * 1.07
S = $1845.99

Each year – $1,725.22
Due- $1,845.99

4-8

Financial calculator used
N = 60
I = 1
PV = -20000,
FV = 0

PMT = $444.89
EAR formula
= (1.01)12 – 1.0
= 12.68%.

NOM% = 12 P/YR =12
EFF% = 12.6825%

PMT= $444.89
EAR= 12.6825%

4-13

a)

financial calculator used entered the known values entered key for the unknown. Entered
N = 10
I = 10 PMT = -400
FV = 0 PV = $2,457.80

b) financial calculator used entered the known values entered key for the unknown. Entered N = 5 I = 5 PMT = -200 FV = 0 PV = $865.90

4-14

A.
CFO=0
1yr=8
Pressed NVP key
NPV=PV=$1,251.25

Change I=8 to I=0