FINANCE need help ASAP please!

[deedee_22]

Still need help solving this questions! I appreciate the responses so far but I don't think they're right based on the formulas we were given This is the formula sheet we were given (as posted below earlier):


These are the formulas we were given for perpetuities:

PV = C/r PV= C/r-g P= D/r-g

1st: Tom is 30 years old today. His salary next year will be $20,000. He forecasts salary growth of 5%/year and plans to retire at 60.
1) If the discount rate is 8%, what is the PV of his future salary receipts?
I did this so far: PV= C/r-g 20000/8% - 5% = 666 666.67 ?
2) He plans to save 5% of his salary each year and invest it at 8%. Once retired, he plans to spend it evenly over the next 20 yrs. How much will be able to spend?
3) What if the amount spend in retirement grows at 3%/year. What would be the amount withdrawn in the first year?


ANNUITY:

1st: A rich uncle leaves you 9 annual payments of $100 with the first payment made immediately, today's value is $714.46 What is the discount rate? (what does it mean by today's value? is this the future or present value?)

2nd: How many years to save $100 000 by depositing $5000 at the beginning of each year, earning 10% compounded semi-annually?

I tried solving it this way: 5000= 100 000/1.05t but this is assuming that the 10% semi-annually should be turned to 5% per term I also don't know if 5000 should also be changed to per term or semi-annually? I'm just a bit confused as to how to go about it

Lastly: Finding bond maturity: Coupon rate = 13%, r= 9.5% (yield), current yield = 10.2% t=?

 

[deedee_22]

WHERE is all this from?
Do you have a teacher?
If not, where do the formulas come from?

Can you calculate this:
the future value of $1,000 at rate of 9% annually, after 27 years?

Its a university course i'm taking, and our professor gave us the formulas; the questions are examples she put on her lecture slides and we're suppose to find the answers. As for your question because its compounded annually FV= 1000 (1+ 9%)^27 = 10245.08

This is the formula sheet she has given us:

 

[jonah2.0]

WARNING: Beer soaked rambling/opinion/observation ahead. Read at your own risk. Not to be taken seriously. In no event shall Sir jonah in his inebriated state be liable to anyone for special, collateral, incidental, or consequential damages in connection with or arising out of the use of his beer (and tequila) powered views.

These are the formulas we were given for perpetuities:

PV = C/r PV= C/r-g P= D/r-g

1st: Tom is 30 years old today. His salary next year will be $20,000. He forecasts salary growth of 5%/year and plans to retire at 60.
1) If the discount rate is 8%, what is the PV of his future salary receipts?
I did this so far: PV= C/r-g 20000/8% - 5% = 666 666.67 ?
2) He plans to save 5% of his salary each year and invest it at 8%. Once retired, he plans to spend it evenly over the next 20 yrs. How much will be able to spend?
3) What if the amount spend in retirement grows at 3%/year. What would be the amount withdrawn in the first year?


ANNUITY:

1st: A rich uncle leaves you 9 annual payments of $100 with the first payment made immediately, today's value is $714.46 What is the discount rate? (what does it mean by today's value? is this the future or present value?)

2nd: How many years to save $100 000 by depositing $5000 at the beginning of each year, earning 10% compounded semi-annually?

I tried solving it this way: 5000= 100 000/1.05t but this is assuming that the 10% semi-annually should be turned to 5% per term I also don't know if 5000 should also be changed to per term or semi-annually? I'm just a bit confused as to how to go about it

Lastly: Finding bond maturity: Coupon rate = 13%, r= 9.5% (yield), current yield = 10.2% t=?

http://en.m.wikipedia.org/wiki/Time_value_of_money
Subject to correction by Sir Denis,
Problem 1.a
20000/(.08-.05)*[1-(1.05/1.08)^30] or \(\displaystyle \frac{20,000}{.08-.05}\left[ 1-{{\left( \frac{1.05}{1.08} \right)}^{30}} \right]\)
Problem 1.b
20000 (.05)[(1.08)^30-(1.05)^30]/(.08-.05)=R[1-(1.08)^(-20)]/.08 or \(\displaystyle \left( 20,000\times .05 \right)\frac{{{\left( 1.08 \right)}^{30}}-{{\left( 1.05 \right)}^{30}}}{.08-.05}=R\frac{1-{{\left( 1.08 \right)}^{-20}}}{.08}\)
Solve for R, the annual retirement withdrawal.
Problem 1.c
20000(.05)[1.08^30-1.05^30]/(.08-.05)=R/(.08-.03)*[1-(1.03/1.08)^20] or \(\displaystyle \left( 20,000\times .05 \right)\frac{{{\left( 1.08 \right)}^{30}}-{{\left( 1.05 \right)}^{30}}}{.08-.05}=\frac{R}{.08-.03}\left[ 1-{{\left( \frac{1.03}{1.08} \right)}^{20}} \right]\)
Solve for R.
Problem 2.1
F=1000 (1.07)^8+2000 (1.07)^6+2000 (1.07)^3-1500 (1.07)^5-1000 (1.07)^1 or \(\displaystyle F=1000{{(1.07)}^{8}}+2000{{(1.07)}^{6}}+2000{{(1.07)}^{3}}-1500{{(1.07)}^{5}}-1000{{(1.07)}^{1}}\)
Problem 2.2
F (1.07)^(-8) or \(\displaystyle F{{(1.07)}^{(-8)}}\)
Problem 3
714.46=100*[1-(1+i )^(-9)]/i*(1+i) or \(\displaystyle 714.46=100\frac{1-{{(1+i)}^{(-9)}}}{i}(1+i)\)
Solve for i using you calculator's solve function. Or use WolframAlpha.
Problem 4
100000=5000*[(1+.10/2)^(t*2)-1]/(.10/2)*(1+.10/2) or \(\displaystyle 100000=5000*\frac{{{(1+\tfrac{.10}{2})}^{(t\times 2)}}-1}{\tfrac{.10}{2}}\left( 1+\tfrac{.10}{2} \right)\)
Solve for t.
Problem 5.
Makes no sense to me. 2 yield rates? That's new. Typo?
Appreciate it if you'd post back with a detailed solution from your professor.

Cheers (preferably with a glass of sobering brandy).

 

[jonah2.0]

Perhaps I need a coupla drinks myself??

Nay Sir Denis, I say nay.
No need to break thy vow of sobriety.
Unless of course you know for certain that the end is just about a few hours away.
I remember this scene from the tv series Angel where Wesley Wyndam-Pryce was about to expire.
He needed to hear one last lie to make his moment of death a happy one. That was simply beautiful.
We should all be so lucky.

 

[jonah2.0]

Solved one of the questions on my own.

Which question might that be?
Care to share your solution?

 

[jonah2.0]

WARNING: Beer soaked rambling/opinion/observation ahead. Read at your own risk. Not to be taken seriously. In no event shall Sir jonah in his inebriated state be liable to anyone for special, collateral, incidental, or consequential damages in connection with or arising out of the use of his beer (and tequila) powered views.

Still need help solving this questions! I appreciate the responses so far but I don't think they're right based on the formulas we were given

I would be sad too if I were you since the formuls that were given to you were simply not enough.
For the record, I'm pretty sure my solutions are correct. What might your basis be for thinking they are not? Have you even tried working out the simple algebra of my dead giveaway equations of value?

This is the formula sheet we were given (as posted below earlier):
View attachment 4501View attachment 4502

The first set of formulas are unnecessary since no perpetuities were involved at all.

These are the formulas we were given for perpetuities:

PV = C/r PV= C/r-g P= D/r-g

As I said, unnecessary. No perpetuities whatsoever.

1st: Tom is 30 years old today. His salary next year will be $20,000. He forecasts salary growth of 5%/year and plans to retire at 60.
1) If the discount rate is 8%, what is the PV of his future salary receipts?
I did this so far: PV= C/r-g 20000/8% - 5% = 666 666.67 ?

Why would you even do that? As I said NO PERPETUITIES WHATSOEVER. The problem was simply asking for the present value of his future salary receipts for next 30 YEARS - NOT FOREVER. Since his salary is increasing geometrically, a special form of the PV formula is needed which is not given in your given formulas. Look for it at the Wikipedia thread that I posted.

 

[deedee_22]

HIC! Good stuff, Sir Jonah. See you fell off the wagon again

For your benefit, Deedee:
Per Sir Jonah:
Problem 1.a : 20000/(.08-.05)*[1-(1.05/1.08)^30]
That results in 380,331.26

Works like a savings account in your Bank:

YEAR    DEPOSIT        INTEREST         BALANCE
  1    20,000.00                       20,000.00
  2    21,000.00       1,600.00        42,600.00
  3    22,050.00       3,408.00        68,058.00
  4    23,152.50       5,444.64        96,655.14
....
 29    78,402.58     251,038.79     3,467,426.20
 30    82,322.71     277,394.10     3,827,143.01

The ending balance of 3,827,143.01 is the Future Value.
The Present Value = 3827143.01 / 1.08^30 = 380,331.26,
as per the formula Sir Jonah bravely showed!

Hope that helps you "see" whadda heck's going on

Thanks for taking the time to respond!

 

[deedee_22]

WARNING: Beer soaked rambling/opinion/observation ahead. Read at your own risk. Not to be taken seriously. In no event shall Sir jonah in his inebriated state be liable to anyone for special, collateral, incidental, or consequential damages in connection with or arising out of the use of his beer (and tequila) powered views.

I would be sad too if I were you since the formuls that were given to you were simply not enough.
For the record, I'm pretty sure my solutions are correct. What might your basis be for thinking they are not? Have you even tried working out the simple algebra of my dead giveaway equations of value?

The first set of formulas are unnecessary since no perpetuities were involved at all.


As I said, unnecessary. No perpetuities whatsoever.

Why would you even do that? As I said NO PERPETUITIES WHATSOEVER. The problem was simply asking for the present value of his future salary receipts for next 30 YEARS - NOT FOREVER. Since his salary is increasing geometrically, a special form of the PV formula is needed which is not given in your given formulas. Look for it at the Wikipedia thread that I posted.

You sound offended by the fact that I said I thought your answers were wrong; the reason I said that was because the formulas we're suppose to use are the ones in the formula sheet and nothing else. Whether or not the way she has taught us is correct I have no idea; finance is not major and this class is simply an elective. So your solutions could very well be correct however, we are suppose to solve them using the formulas given and the perpetuities are actually used in the questions as per my professor.
Nonetheless, thanks for taking the time to solve them.

 

[jonah2.0]

WARNING: Beer soaked rambling/opinion/observation ahead. Read at your own risk. Not to be taken seriously. In no event shall Sir jonah in his inebriated state be liable to anyone for special, collateral, incidental, or consequential damages in connection with or arising out of the use of his beer (and tequila) powered views.

You sound offended by the fact that I said I thought your answers were wrong; the reason I said that was because the formulas we're suppose to use are the ones in the formula sheet and nothing else. Whether or not the way she has taught us is correct I have no idea; finance is not major and this class is simply an elective. So your solutions could very well be correct however, we are suppose to solve them using the formulas given and the perpetuities are actually used in the questions as per my professor.
Nonetheless, thanks for taking the time to solve them.

Not at all; as per my disclaimer, you shouldn't take my posts as anything more than just beer ramblings (that occasionally become combative when booze gets mixed up with anti allergy meds). I am nothing if not thankful for posting your questions at a time when my aging brain is badly in need of some mental exercise. At any rate, I hope I didn't offend you in turn with my silly comments. Hopefully, you will still share with us your professor's solution to the last problem: the strange bond maturity problem. We're never too old to learn something new.

Again,

Cheers (and I mean that literally)!