FIN401 LASA 1 – The Time Value of Money

FIN401 LASA 1 – The Time Value of Money

Assignment 2: LASA 1—The Time Value of Money

submit a 4-5 page report based on the following
problem:

Mary has been working for a university for almost 25 years and is now
approaching retirement. She wants to address several financial issues before
her retirement and has asked you to help her resolve the situations below. Her
assignment to you is to provide a 4-5 page report, addressing each of the
following issues separately. You are to show all your calculations and provide
a detailed explanation for each issue.

Issue A:
For the last 19 years, Mary has been depositing $500 in her savings account ,
which has earned 5% per year, compounded annually and is expected to continue
paying that amount. Mary will make one more $500 deposit one year from today.
If Mary closes the account right after she makes the last deposit, how much
will this account be worth at that time?

Issue B:
Mary has been working at the university for 25 years, with an excellent record
of service. As a result, the board wants to reward her with a bonus to her
retirement package. They are offering her $75,000 a year for 20 years, starting
one year from her retirement date and each year for 19 years after that date.
Mary would prefer a one-time payment the day after she retires. What would this
amount be if the appropriate interest rate is 7%?

Issue C:
Mary’sreplacement is unexpectedly hired away by another
school, and Mary is asked to stay in her position for another three years. The
board assumes the bonus should stay the same, but Mary knows the present value
of her bonus will change. What would be the present value of her deferred
annuity?

Issue D:
Mary wants to help pay for her granddaughter Beth’s education. She has decided
to pay for half of the tuition costs at State University, which are now $11,000
per year. Tuition is expected to increase at a rate of 7% per year into the
foreseeable future. Beth just had her 12th birthday. Beth plans to start
college on her 18th birthday and finish in four years. Mary will make a deposit
today and continue making deposits each year until Beth starts college. The
account will earn 4% interest, compounded annually. How much must Mary’s
deposits be each year in order to pay half of Beth’s tuition at the beginning of
each school each year?

Turn
in your completed work to the M3: Assignment 2 Dropboxby Wednesday,
October 23, 2013.