Mary has been working for a university for almost 25 years andis now approaching retirement. She wants to address severalfinancial issues before her retirement and has asked you to helpher resolve the situations below. Her assignment to you is toprovide a 4-5 page report, addressing each of the following issuesseparately. You are to show all your calculations and provide adetailed explanation for each issue. Issue A: For the last 19years, Mary has been depositing $500 in her savings account , whichhas earned 5% per year, compounded annually and is expected tocontinue paying that amount. Mary will make one more $500 depositone year from today. If Mary closes the account right after shemakes the last deposit, how much will this account be worth at thattime? Issue B: Mary has been working at the university for 25years, with an excellent record of service. As a result, the boardwants to reward her with a bonus to her retirement package. Theyare offering her $75,000 a year for 20 years, starting one yearfrom her retirement date and each year for 19 years after thatdate. Mary would prefer a one-time payment the day after sheretires. What would this amount be if the appropriate interest rateis 7%? Issue C: Maryâs replacement is unexpectedly hired away byanother school, and Mary is asked to stay in her position foranother three years. The board assumes the bonus should stay thesame, but Mary knows the present value of her bonus will change.What would be the present value of her deferred annuity? Issue D:Mary wants to help pay for her granddaughter Bethâs education. Shehas decided to pay for half of the tuition costs at StateUniversity, which are now $11,000 per year. Tuition is expected toincrease at a rate of 7% per year into the foreseeable future. Bethjust had her 12th birthday. Beth plans to start college on her 18thbirthday and finish in four years. Mary will make a deposit todayand continue making deposits each year until Beth starts college.The account will earn 4% interest, compounded annually. How muchmust Maryâs deposits be each year in order to pay half of Bethâstuition at the beginning of each school each year?
Mary has been working for a university for almost 25 years andis now approaching retirement. She wants to address severalfinancial issues before her retirement and has asked you to helpher resolve the situations below. Her assignment to you is toprovide a 4-5 page report, addressing each of the following issuesseparately. You are to show all your calculations and provide adetailed explanation for each issue. Issue A: For the last 19years, Mary has been depositing $500 in her savings account , whichhas earned 5% per year, compounded annually and is expected tocontinue paying that amount. Mary will make one more $500 depositone year from today. If Mary closes the account right after shemakes the last deposit, how much will this account be worth at thattime? Issue B: Mary has been working at the university for 25years, with an excellent record of service. As a result, the boardwants to reward her with a bonus to her retirement package. Theyare offering her $75,000 a year for 20 years, starting one yearfrom her retirement date and each year for 19 years after thatdate. Mary would prefer a one-time payment the day after sheretires. What would this amount be if the appropriate interest rateis 7%? Issue C: Maryâs replacement is unexpectedly hired away byanother school, and Mary is asked to stay in her position foranother three years. The board assumes the bonus should stay thesame, but Mary knows the present value of her bonus will change.What would be the present value of her deferred annuity? Issue D:Mary wants to help pay for her granddaughter Bethâs education. Shehas decided to pay for half of the tuition costs at StateUniversity, which are now $11,000 per year. Tuition is expected toincrease at a rate of 7% per year into the foreseeable future. Bethjust had her 12th birthday. Beth plans to start college on her 18thbirthday and finish in four years. Mary will make a deposit todayand continue making deposits each year until Beth starts college.The account will earn 4% interest, compounded annually. How muchmust Maryâs deposits be each year in order to pay half of Bethâstuition at the beginning of each school each year?
