(A) Suppose Mr. Ali, a manager in a financial firm, has just won a lottery of worth $ 10,000 and is planning to retire thirty years from today. He expects that he may need $ 45,000 on the marriage of his daughter 20 years from today, $ 15,000 to exchange his old car with the new one 15 years from today and $ 150,000 to purchase a house exactly at the retirement age. He determines that he needs $20,000 per year once he retires, with the first retirement funds withdrawn one year from the day he retires. He estimates that he will earn 9 % per year on the retirement funds and that he will need funds up to and including his 20th birthday after retirement. i. How much he needs to deposit in an account today so that he has enough funds to meet all his future expenditures? ii. How much he needs to deposit each year in an account, starting one year from today upto his retirement age, so that he may have enough funds to meet all his future requirements?
(A) Suppose Mr. Ali, a manager in a financial firm, has just won a lottery of worth $
10,000 and is planning to retire thirty years from today. He expects that he may need
$ 45,000 on the marriage of his daughter 20 years from today, $ 15,000 to exchange
his old car with the new one 15 years from today and $ 150,000 to purchase a house
exactly at the retirement age. He determines that he needs $20,000 per year once he
retires, with the first retirement funds withdrawn one year from the day he retires.
He estimates that he will earn 9 % per year on the retirement funds and that he will
need funds up to and including his 20th birthday after retirement.
i. How much he needs to deposit in an account today so that he has enough funds to
meet all his future expenditures?
ii. How much he needs to deposit each year in an account, starting one year from today
upto his retirement age, so that he may have enough funds to meet all his future
requirements?
(B) Suppose that an investment promises to pay a nominal 9.6 percent annual rate of
interest. What is the effective annual interest rate on this investment assuming that
interest is compounded (a) annually? (b) semiannually? (c) quarterly? (d) monthly? (e)
daily (365 days)? (f) Weekly?
(C) Calculate (over time) Current Yields,
and 14% Coupon Bonds with face value of $ 1000 each, when the market interest rate
remains constant at 11%. You should start your calculations when each bond has 7
years until maturity and see how
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