solution

Juan is the lucky winner of the California state lottery.
Lottery company gives him the following two options:
(a) Annuity, 30 payments of \$1 million per year (starting TODAY),
or (b) Lumpsum, \$15 million paid TODAY.
He can save that money in a bank that pays 7% annual rate.

How much is the benefit (in today’s dollars) if Juan
chose option (b)?

following format: 1.234 or -1.234

Hint: Answer is between -1.55 and -1.912

Question 3

You are considering investing in a savings account that will pay
\$15,000 in ten years.

If the interest rate is fixed at 4% per year, How much
should you deposit in the savings account today?

Hint: Answer is between 9018.78 and 11349.48

Question 6

Maria plans to buy a house for \$400,000.
A bank offers her a 30-year loan, with equal annual payments at the
end of each year, with an interest rate of 4% per year.
The bank requires that Maria pay 20% of the purchase price as a
down payment.

How much Maria has to pay as the annual loan
payment?

Hint: Answer is between 16655.07 and 19986.08

Question 7

You have just graduated and need money to buy a car. Maria, your
rich aunt, will lend you the money if you pay her back in 4
years.
You offer to pay her the same 7% rate of interest that she would
otherwise get by putting her money in a savings account.
Based on your budget, you can pay her \$5000 in one year, and then
\$8000 each year for the next three years.

How much can you borrow from your aunt
Maria?

Hint: Answer is between 22350.44 and 26480.41

Question 8

Suppose you want to endow (fund) an annual graduation party at
CSUDH.
Although 41,000 is adequate for next yearâ€™s party, the partyâ€™s cost
will rise by 4% per year thereafter.
If the university earns 8% per year on its investments, and if the
first party is in one yearâ€™s time,

How much will you need to donate to the university today to
endow the party?

following format: 1.234

Hint: Answer is between 0.902 and 1.148

Question 9

You are considering investing in a savings account. You have
\$20,000 now and you do not anticipate needing that money for 15
years.
Banks are paying 7% interest rate per year.

If you invest, How much money will you have after
15-years?

Hint: Answer is between 48558.96 and 60146.89

Question 10

Janet is 35 years old, and she has decided it is time to plan
seriously for her retirement.
At the end of each year until she is 65, she will save \$10,000 in a
retirement account.
If the retirement account earns 9% per year,

How much will Janet have saved for retirement at age
65?

following format: 1.234

Hint: Answer is between 1.254 and 1.472

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