QUESTION

# Carrie Haute buys a fast food restaurant for \$500,000. She is very successful and sells the business six years later for \$1,375,000. What is Carrie's...

1. Carrie Haute buys a fast food restaurant for \$500,000. She is very successful and sells the business six years later for \$1,375,000. What is Carrie's internal rate of return?
2. Discuss the differences between the present value of an annuity and the future value of an annuity.
3. You have just won the lottery and have elected to receive \$50,000 per year for 20 years. Assume that a 4 percent interest rate is used to evaluate the annuity and that you receive each payment at the beginning of the year.
4. What is the present value of the lottery?
5. How much interest is earned on the present value to make the \$50,000-per-year payment?
6. Mr. Bates is creating a college fund for his daughter. He will put in \$850 at the end of each year for the next 15 years. He expects to earn 6.35% annually. How much money will his daughter have in her college fund?
7. Sam is currently 30 years of age. He owns his own business, and wants to retire at the age of 60. He has little confidence in the current Social Security system. He wants to retire with an annual income of \$72,000 a year. If Sam believes he will live to age 90, how much does he have to accumulate by the time he reaches age 60 to receive \$72,000 at the end of each year for rest of his life? Sam believes he can earn 8 percent on his money in a stock mutual fund.
8. How much does Sam have to accumulate if he wants the payment of \$72,000 at the beginning of each year?