Author Question: Mr. & Mrs. Pribel wish to purchase a boat in 8 years when they retire. They are planning to ... (Read 36 times)

leilurhhh · **on:** Jul 10, 2018

Mr. & Mrs. Pribel wish to purchase a boat in 8 years when they retire. They are planning to purchase the boat using proceeds from the sale of their property which is currently worth 90,000 and its value is growing at 7 percent a year.

The boat is currently worth 200,000 increasing at 5 percent per year. In addition to the value of their property, how much additional money should they deposit at the end of each year in an account paying 9 percent annual interest in order to be able to buy the boat upon retirement?

Question 2

Which of the following is an example of agency cost?

A) costs incurred for setting up an agency
B) failure of making the best investment decision
C) payment of income tax
D) payment of interest

babybsemail · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Value of the property upon retirement:
PV = 90,000, I = 7, N = 8, PMT=0
CPT FV = 154,637
Value of the boat upon retirement:
PV = 200,000, I = 5, N = 8, PMT=0
CPT FV = 295,491
Additional money needed upon retirement:
295,491 - 154,637 = 140854
Amount of money needed to deposit at the end of each year:
PV=0, FV = 140,780, N = 8, I = 9, PMT = ?
PMT = 12,765.69

Answer to Question 2

B