MGMT350 Columbia College Time Money Value Exercises Answer each of the following problems and explain step by step how to calculate it. Time Money Value

MGMT350 Columbia College Time Money Value Exercises Answer each of the following problems and explain step by step how to calculate it.

Time Money Value

1.Rita Gonzales won the $40 million lottery. She is to receive $1.4 million a year for the next 20 years plus an additional lump sum payment of $12 million after 20 years. The discount rate is 11 percent.

What is the current value of her winnings?

Present Value:

2.Sherwin Williams will receive $20,650 a year for the next 20 years as a result of a picture he has painted.

What is the present value of these payments if the discount rate is 7 percent?

Present Value:

3.You invest a single amount of $18,000 for 6 years at 14 percent. At the end of 6 years you take the proceeds and invest them for 14 years at 17 percent.

How much will you have after 20 years

Present Value:

4.Jack Hammer invests in a stock that will pay dividends of $3.02 at the end of the first year; $3.34 at the end of the second year; and $3.66 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $52.

What is the present value of all future benefits if a discount rate of 9 percent is applied?

Dividend

Present Value

$3.02

$

3.34

3.66

52.00

Total

5.Juan Garza invested $108,000 10 years ago at 8 percent, compounded quarterly

Future Value

6.Franklin Templeton has just invested $9,560 for his son (age one). This money will be used for his son’s education 17 years from now. He calculates that he will need $48,283 by the time the boy goes to school.

What rate of return will Mr. Templeton need in order to achieve this goal?

Rate of return

%

7.Mr. Dow bought 100 shares of stock at $16 per share. Three years later, he sold the stock for $22 per share.

What is his annual rate of return?

Annual rate

%

8.You wish to retire in 10 years, at which time you want to have accumulated enough money to receive an annual annuity of $20,000 for 15 years after retirement. During the period before retirement you can earn 11 percent annually, while after retirement you can earn 13 percent on your money.

What annual contributions to the retirement fund will allow you to receive the $20,000 annuity?

Annual contribution