Question 1

Gina has $500,000 accumulated in her RRSP and intends to use the amount to purchase a 20-year annuity. She is investigating the size of quarterly payment she can expect to receive, depending on the rate of return earned by the funds. What nominal rate of return must the funds earn for the beginning-of-quarter payment to be:
a. $10,000?
b. $11,000?
c. $12,000?

Accepted Answer

The answer of Gina has $500,000 accumulated in her RRSP...

Question 2

Your client currently has accumulated capital of $560,000 and hopes to retire this year. She wants to receive an annuity payment at the beginning of each year for the next 20 years. If the capital can earn
6.5% compounded annually, what maximum annual payment can she receive and just deplete the capital after 20 years? (Taken from CIFP course materials.)

Accepted Answer

The answer of Your client currently has accumulated capital of...

Question 3

Your client purchases an annuity for $700,000 that provides beginning-of-month payments for 15 years. If the annuity earns 4.5% compounded monthly, what monthly payment will he receive? (Taken from CIFP course materials.)

Accepted Answer

The answer of Your client purchases an annuity for $700,000...

Question 4

Your client wants to accumulate $1,000,000 over the next 25 years by investing the same amount at the beginning of each month. If she can expect a long-term rate of return of 8% compounded annually, how much must she invest each month? (Taken from CIFP course materials.)

Accepted Answer

The answer of Your client wants to accumulate $1,000,000 over...

Question 5

To accumulate $200,000 after 20 years, what amount must be invested each year if the investment earns
9% compounded annually and the contributions are made:
a) At the beginning of each year?
b) At the end of each year?

Accepted Answer

The answer of To accumulate $200,000 after 20 years, what...

Question 6

What maximum annual withdrawals will a $200,000 fund earning 6% compounded annually sustain for
20 years if the withdrawals are made:
a) At the beginning of each year?
b) At the end of each year?

Accepted Answer

The answer of What maximum annual withdrawals will a $200,000...

Question 7

Triex Manufacturing wants to accumulate $500,000 for an expansion planned to begin in 5 years. If today Triex makes the first of equal quarterly payments into a fund earning 8.25% compounded monthly, what size should these payments be?

Accepted Answer

The answer of Triex Manufacturing wants to accumulate $500,000 for...

Question 8

Your client has already accumulated $20,000 and plans to invest another $5000 at the beginning of each year for the next 15 years. He expects to earn a return of 7 % compounded annually on his investments. How much will his investments be worth fifteen years from now? (Taken from CIFP course materials.)

Accepted Answer

The answer of Your client has already accumulated $20,000 and...

Question 9

An insurance company wishes to offer customers a monthly instalment alternative to the annual premium plan. All premiums are payable at the beginning of the period of coverage. The monthly payment plan is to include an interest charge of 12% compounded monthly on the unpaid balance of the annual premium. What will be the monthly premium per $100 of annual premium?

Accepted Answer

The answer of An insurance company wishes to offer customers...

Question 10

Advance Leasing calculates the monthly payments on its three-year leases on the basis of recovering the capital cost of the leased equipment and earning an 13.5% compounded monthly rate of return on its capital investment. What will be the monthly lease payment on equipment that costs $8500?

Accepted Answer

The answer of Advance Leasing calculates the monthly payments on...

Question 11

Shane is about to have his 25^th birthday. He has set a goal of retiring at age 55 with $700,000 in an RRSP. For planning purposes he is assuming that his RRSP will earn 8% compounded annually. a) What contribution on each birthday from age 25 to 54 inclusive will be required to accumulate the desired amount in his RRSP? b) If he waits five years before starting his RRSP, what contribution on each birthday from age 30 to 54 inclusive will be required to accumulate the target amount?

Accepted Answer

The answer of Shane is about to have his 25^th...

Question 12

Wendy will soon turn 33. She wants to accumulate $500,000 in an RRSP by her 60^th birthday. How much larger will her annual contributions have to be if they are made at the end of each year (from age 33 to age 60) instead of at the beginning of each year? Assume that her RRSP will earn 9% compounded annually.

Accepted Answer

The answer of Wendy will soon turn 33. She wants...

Question 13

Island Water Taxi has decided to lease another boat for five years rather than to finance the purchase of the boat at an interest rate of 10.5% compounded monthly. It is treating the lease as a capital lease and has set up a long-term lease liability of $43,000. What is the lease payment at the beginning of each month?

Accepted Answer

The answer of Island Water Taxi has decided to lease...

Question 14

The MSRP on a Nissan Maxima 3.5 SV is $38,625. The interest rate on a 48-month lease is 1.9% compounded monthly. What is the monthly lease payment, assuming a down payment of $5400 and a residual value of $11,990?

Accepted Answer

The answer of The MSRP on a Nissan Maxima 3.5...

Question 15

The $219.40 monthly payment on a 48-month lease of a Kia SOUL was based on a down payment of $1545, an interest rate of 3.9% compounded monthly, and a residual value of $6815. What is the full price (MSRP) for the car?

Accepted Answer

The answer of The $219.40 monthly payment on a 48-month...

Question 16

With a down payment of $4850, the monthly payment on a four-year lease of a Ford F150 SuperCab (MSRP $27,629) is $369.27. The interest rate on the lease is 7.99% compounded monthly. What residual value was used in the calculation?

Accepted Answer

The answer of With a down payment of $4850, the...

Question 17

A Smart For Two cabriolet (MSRP $21,550) can be leased for $248 per month. This payment is based on an interest rate of 6.9% compounded monthly, a down payment of $1425, and a residual value of $14,794. What is the term of the lease?

Accepted Answer

The answer of A Smart For Two cabriolet (MSRP $21,550)...

Question 18

What interest rate is being charged if the monthly payment on a 48-month lease of a Jaguar XF (MSRP $58,125) is $799? The required down payment is $2999 and the residual value is $24,059.

Accepted Answer

The answer of What interest rate is being charged if...

Question 19

The MSRP for a BMW 528i is $58,499. The monthly payment on a 48-month lease at 1.9% compounded monthly is $697. The residual value at the end of the lease is $21,000. Rounded to the nearest dollar, what down payment was used in the lease calculation?

Accepted Answer

The answer of The MSRP for a BMW 528i is...

Question 20

Kim wants to save half of the $30,000 purchase price of a new car by making monthly deposits of $700, beginning today, into a T-bill savings account earning 4.2% compounded monthly. How long will it take him to reach his goal?

Accepted Answer

The answer of Kim wants to save half of the...

Quiz 12: Annuities Due