ASSIGNMENT 4

Financial Management-I
BSC-II
Instructor: Mehvish Umer
Spring Semester 2021

1. Your grandfather suggested that you get in the habit of saving early in life. You start putting aside $1,825 every
year at the end of the year in an online brokerage mutual fund account that has a return of 8% when you turn 18. If
you continue saving in this way for the rest of your life, how much do you expect to have in your account when you
turn 65?

2. What’s the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this was an annuity due,
what would its future value be?

3. Assume that you are offered an annuity that pays $100 at the end of each year for 10 years. You could earn 8%
on your money in other investments with equal risk. What is the most you should pay for the annuity? If the
payments began immediately, how much would the annuity be worth?

1. Suppose you inherited $100,000 and invested it at 7% per year. How much could you withdraw at the end of
each of the next 10 years? How would your answer change if you made withdrawals at the beginning of each year?

2. Assume that you just inherited an annuity that will pay you $10,000 per year for 10 years, with the first payment
being made today. A friend of your mother offers to give you $60,000 for the annuity. If you sell it, what rate of
return would your mother’s friend earn on his investment? If you think a “fair” return would be 6%, how much
should you ask for the annuity?

3. You have a student loan outstanding of $15,000 and you feel that you will be able to pay $3,500 every year. The
annual interest rate is 4%. How long will it take for you to pay off your loan?