Paul Adams owns a health club in downtown Los Angeles

1)

Paul Adams owns a health club in downtown Los Angeles. He charges his customers an annual fee of $530 and has an existing customer base of 500. Paul plans to raise the annual fee by 5.3 percent every year and expects the club membership to grow at a constant rate of 3 percent for the next five years. The overall expenses of running the health club are $74,400 a year and are expected to grow at the inflation rate of 1.4 percent annually. After five years, Paul plans to buy a luxury boat for $494,000, close the health club, and travel the world in his boat for the rest of his life.

Required:
What is the annual amount that Paul can spend while on his world tour if he will have no money left in the bank when he dies? Assume Paul has a remaining life of 24 years and earns 10 percent on his savings. (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16))

Annual withdrawal $


2)

Laurel, Inc., and Hardy Corp. both have 16 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 4 years to maturity, whereas the Hardy Corp. bond has 12 years to maturity.

Required:
(a)
If interest rates suddenly rise by 3 percent, what is the percentage change in the price of these bonds? (Do not include the percent signs (%). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

Percentage change in price
Laurel %
Hardy %

(b)
If interest rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of these bonds? (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))

Percentage change in price
Laurel %
Hardy %

3)

Suppose the real rate is 5.6 percent and the inflation rate is 1.9 percent.

Required:
What rate would you expect to see on a Treasury bill? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Rate on Treasury bill

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