Question 1

To compensate for the effects of inflation during their retirement years, the Pelyks intend to purchase a combination of annuities that will provide the following pattern of month-end income:  
How much will they need in their RRSPs when they retire at the beginning of 2005 to purchase the annuities, if the annuity payments are based on a rate of return of 8% compounded semiannually?

Accepted Answer

The answer of To compensate for the effects of inflation...

Question 2

For its "Tenth Anniversary Salebration," Pioneer Furniture is offering terms of 10% down, no interest, and no payments for six months. The balance must then be paid in six equal payments, with the first payment due six months after the purchase date. The conditional sale contract calculates the monthly payments to include interest at the rate of 15% compounded monthly after the end of the interest free period. Immediately after the sale of the furniture, Pioneer sells the contract to Afco Finance at a discount to yield Afco 18% compounded semiannually from the date of the sale. What cash payment will Pioneer receive from Afco on a piece of furniture sold for $2000?

Accepted Answer

The answer of For its "Tenth Anniversary Salebration," Pioneer Furniture...

Question 3

Patrick contributes $1000 at the beginning of every quarter to his RRSP. In addition, he contributes another $2000 to the RRSP each year from his year end bonus. If the RRSP earns 9.5% compounded semiannually, what will be the value of his RRSP after 23 years?

Accepted Answer

The answer of Patrick contributes $1000 at the beginning of...

Question 4

Reg is developing a financial plan that would enable him to retire 30 years from now at age 60. Upon reaching age 60, he will use some of the funds in his RRSP to purchase an eight year annuity that pays $5000 at the end of each month. Then, at age 68, he will use the remaining funds to purchase a 20 year annuity paying $6000 at each month's end. What contributions must he make to an RRSP at the beginning of each quarter for 30 years to achieve his retirement goal if the RRSP and the annuities earn 7.5% compounded monthly?

Accepted Answer

The answer of Reg is developing a financial plan that...

Question 5

Cynthia currently has $55,000 in her RRSP. She plans to contribute $5000 at the end of each year for the next 17 years and then use the accumulated funds to purchase a 20 year annuity making end-of-month payments.
a) Assume that her RRSP earns 8.75% compounded annually for the next 17 years, and the fund from which the annuity is paid will earn 5.4% compounded monthly. What monthly payments will she receive?
b) If the average annual rate of inflation for the next 17 years is 2%, what will be the purchasing power in today's dollars of the monthly payments 17 years from now?

Accepted Answer

The answer of Cynthia currently has $55,000 in her RRSP....

Question 6

A major car manufacturer is developing a promotion offering new car buyers the choice between "below market"
4 year financing at 1.9% compounded monthly or a cash rebate. On the purchase of a $25,000 car, what cash rebate would make a car buyer indifferent between the following alternatives?
--Financing through the car dealer at the reduced interest rate.
--Taking the cash rebate and obtaining bank financing at 10.5% compounded monthly for the net "cash" price.

Accepted Answer

The answer of A major car manufacturer is developing a...

Question 7

The monthly payments on a $30,000 loan at 10.5% compounded monthly were calculated to repay the loan over a 10 year period. After 32 payments were made, the borrower became unemployed and, with the approval of the lender, missed the next three payments. a) What amount paid along with the regular payment at the end of the 36^th month will put the loan repayment back on the original schedule? b) Instead of the "make-up" arrangement in part a, suppose the regular loan payments (beginning with the payment at the end of the 36^th month) are recalculated to put the loan back on its 10-year repayment "track." What will be the new payments?

Accepted Answer

The answer of The monthly payments on a $30,000 loan...

Question 8

Martha's RRSP is currently worth $97,000. She plans to contribute $5000 at the beginning of every six months until she reaches age 58, 12 years from now. Then she intends to use half of the funds in the RRSP to purchase a 20-year annuity making month-end payments. Five years later she will use half of the funds then in her RRSP to purchase another 20-year annuity making month-end payments. Finally, at age 68, she will use all of the remaining funds to purchase a third 20-year annuity also making end-of-month payments. What will be her monthly income at age 65 and at age 70 if her RRSP and the annuities earn 7.5% compounded monthly?

Accepted Answer

The answer of Martha's RRSP is currently worth $97,000. She...

Question 9

Brunswick Trucking has signed a five-year lease with Ford Credit Canada Ltd. on a new truck. Lease payments of $1900 are made at the beginning of each month. To purchase the truck, Brunswick Trucking would have had to borrow funds at 8.25% compounded monthly.
a) What initial liability should Brunswick report on its balance sheet?
b) How much will the liability be reduced during the first year of the lease?

Accepted Answer

The answer of Brunswick Trucking has signed a five-year lease...

Question 10

What minimum amount of money earning 7% compounded semiannually will sustain withdrawals of $1000 at the beginning of every month for 12 years?

Accepted Answer

The answer of What minimum amount of money earning 7%...

Question 11

What maximum annual withdrawals will a $300,000 fund earning 7.75% compounded annually sustain for 25 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 $300,000...

Question 12

Regular investments made at the beginning of each quarter earn 6% compounded quarterly. How many more $1000 investments than $1100 investments will it take to accumulate $100,000?

Accepted Answer

The answer of Regular investments made at the beginning of...

Question 13

An RRSP is now worth $316,000 after contributions of $3500 at the beginning of every six months for 17 years. What effective rate of return has the plan earned?

Accepted Answer

The answer of An RRSP is now worth $316,000 after...

Question 14

Calculate the amount that will be accumulated after 20 years if:
a) $1000 is invested at the beginning of every six months at 8.5% compounded semiannually.
b) $2000 is invested at the beginning of every year at 8.5% compounded annually.

Accepted Answer

The answer of Calculate the amount that will be accumulated...

Question 15

A life insurance company quoted an annual premium of $387.50 (payable at the beginning of the year) for a $250,000 term insurance policy on a 35 year-old male nonsmoker. Alternatively, the insured can pay $33.71 at the beginning of each month by preauthorized cheques. Which payment plan would an applicant choose solely on the basis of money being worth 7.5% compounded monthly?

Accepted Answer

The answer of A life insurance company quoted an annual...

Question 16

A seven-year capital lease of an executive jet requires semiannual payments of $200,000 at the beginning of each six-month period. The company can borrow funds for five to 10 years at 7.4% compounded semiannually.
a) What long-term lease liability will the firm set up at the start of the term of the lease?
b) What liability will remain halfway through the term of the lease?

Accepted Answer

The answer of A seven-year capital lease of an executive...

Question 17

Suppose that $5000 is contributed at the beginning of each year to an RRSP that earns 8% compounded annually.
a) How many contributions will it take to accumulate the first $500,000?
b) How many more contributions will it take for the RRSP to reach $1,000,000?

Accepted Answer

The answer of Suppose that $5000 is contributed at the...

Question 18

The membership dues at Shoreline Golf and Country Club are $2820 payable at the beginning of the year, or four payments of $736.56 payable at the beginning of each quarter. What effective rate of interest is the club charging members who pay their dues quarterly?

Accepted Answer

The answer of The membership dues at Shoreline Golf and...

Question 19

Excel Leasing calculates the payments on long-term equipment leases so that it earns a rate of return of 15% compounded quarterly on its investment in the equipment. What beginning-of-month payments will Excel charge on a 4-year lease of a photocopier costing $7650? (Assume the photocopier has no residual value at the end of the lease.)

Accepted Answer

The answer of Excel Leasing calculates the payments on long-term...

Question 20

Apex Fabricating wants to accumulate $800,000 for an expansion expected to begin in four years. If today Apex makes the first of equal quarterly payments into a fund earning 6.75% compounded monthly, what should the size of these payments be?

Accepted Answer

The answer of Apex Fabricating wants to accumulate $800,000 for...

Quiz 12: Annuities Due

Patrick contributes $1000 at the beginning of every quarter to his RRSP. In addition, he contributes another $2000 to the RRSP each year from his year end bonus. If the RRSP earns 9.5% compounded semiannually, what will be the value of his RRSP after 23 years?

What minimum amount of money earning 7% compounded semiannually will sustain withdrawals of $1000 at the beginning of every month for 12 years?

What maximum annual withdrawals will a $300,000 fund earning 7.75% compounded annually sustain for 25 years if the withdrawals are made: a) At the beginning of each year? b) At the end of each year?

Regular investments made at the beginning of each quarter earn 6% compounded quarterly. How many more $1000 investments than $1100 investments will it take to accumulate $100,000?

An RRSP is now worth $316,000 after contributions of $3500 at the beginning of every six months for 17 years. What effective rate of return has the plan earned?

Calculate the amount that will be accumulated after 20 years if: a) $1000 is invested at the beginning of every six months at 8.5% compounded semiannually. b) $2000 is invested at the beginning of every year at 8.5% compounded annually.

Suppose that $5000 is contributed at the beginning of each year to an RRSP that earns 8% compounded annually. a) How many contributions will it take to accumulate the first $500,000? b) How many more contributions will it take for the RRSP to reach $1,000,000?

The membership dues at Shoreline Golf and Country Club are $2820 payable at the beginning of the year, or four payments of $736.56 payable at the beginning of each quarter. What effective rate of interest is the club charging members who pay their dues quarterly?

Apex Fabricating wants to accumulate $800,000 for an expansion expected to begin in four years. If today Apex makes the first of equal quarterly payments into a fund earning 6.75% compounded monthly, what should the size of these payments be?