Business Finance
Accounting 2

Question Description

Can you help me understand this Accounting question?

1. Robert Hitchcock is 40 years old today and he wishes to accumulate $500,000 by his sixty-fifth birthday so he can retire to his summer place on Lake Hopatcong. He wishes to accumulate this amount by making equal deposits on his fortieth through his sixty-fourth birthdays. What annual deposit must Robert make if the fund will earn 12% interest compounded annually?

2. Diane Ross has $20,000 to invest today at 9% to pay a debt of $47,347. How many years will it take her to accumulate enough to liquidate the debt?

3. Cindy Houston has a $27,600 debt that she wishes to repay 4 years from today; she has $19,553 that she intends to invest for the 4 years. What rate of interest will she need to earn annually in order to accumulate enough to pay the debt?

4. Julia Baker died, leaving her husband Brent an insurance policy contract that provides that the beneficiary can choose any one of the following four options.

a)  $55,000 immediate cash

b)  $4,000 every 3 months payable at the end of each quarter for 5 years.

c)  $18,000 immediate cash and $1,800 every 3 months for 10 years, payable at the beginning of each 3-month period.

d)  $4,000 every 3 months for 3 years and $1,500 each quarter for the following 25 quarters, all payments payable at the end of each quarter.

Instructions:

If money is worth 2 ½% per quarter, compounded quarterly, which option would you recommend that Brent exercises?


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Final Answer

enty6003 (25)
Cornell University

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