Dr. J. wants to buy a Dell computer which will cost $3,000 three years from today

Pedro Gonzalez will invest $5,000 at the beginning of each year for the next 9 years. The interest rate is 8 percent. What is the future value?

A. $58,471.
B. $62,440.
C. $67,435.
D. $72,435.

FV_A = A ´FV_IFA (App. C: 8%, 9 + 1=10 periods)
= $5,000 ´ (14.487-1) = $67,435

Ambrin Corp. expects to receive $2,000 per year for 10 years and $3,500 per year for the next 10 years. What is the present value of this 20 year cash flow? Use an 11% discount rate.

A. $19,034
B. $27,870
C. $32,389
D. none of these

PV_A = A ´PV_IFA (App. D: 11%, 10 periods)
= $2,000 x 5.889 = $11,778
PV_A = A ´ PV_IFA (App. D: 11%, 10 periods)
= $2,000 x 5.889 = $17,688 x PVIF (App. B: 11%, 10 periods)
PVIF = $17,688 ´ (.352) = $7,255
$11,778 + $7,255 = $19,034

 Dr. J. wants to buy a Dell computer which will cost $3,000 three years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn 8% annual return. How much should he set aside?

A. $879
B. $627
C. $924
D. $1,243

(App. C: 8%, 3 periods)
A = $3,000
3.246
A = $924