A. ed sloan wants to withdraw $25,000 (including principal) from an investment fund at the end of each year for five years. compute his required initial investment at the beginning of the first year if the fund earns 8% compounded annually? hint - think of this as a standard ordinary annuity. b. the market price of a $800,000, ten-year, 8% (pays interest annually) bond issue sold to yield an effective rate (i. e. market rate) of 10% is: c. elston company has entered into a lease agreement for office equipment which could be purchased for $39,927. elston company has, however, chosen to lease the equipment for $10,000 per year, payable at the end of each of the next 5 years. calculate the implied interest rate for the lease payments.

A- 99,817.75 dollars

B-701,686.93 dollars

C- implicit interest rate 8%

Explanation:

A.- we need to calculate the present value of an annuity of 25,000 for 5 years discounted at 8%:

C25,000

time5

rate0.08

PV99,817.7509

B.- we discount the coupon payment and maturity at 10% market rate

Coupon payment: 800,000 x 8%= 64,000

time: 10 years

rate10% = 0.1

PV$393,252.2948

Maturity  800,000.00

time   10 years

rate  0.1

PV   308,434.63

PV copupon payment:$393,252.2948

PV maturity:             $308,434.6315

Total                          $701,686.9263

C we solve for the IRR using the excel IRR function:

we list the cashflows of the lease:

year 0      39,927

year 1      -10,000

year 2      -10,000

year 3      -10,000

year 4      -10,000

year 5      -10,000

we write: =IRR( and select the cell on which we list the cash flow and press enter

IRR = 0.08 = 8%

answer; read and consider the content of the items;

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.