Accounting 2

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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.

immediate cash

every 3 months payable at the end of each quarter for 5 years.

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

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.


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