PLEASE SHOW ALL WORK
1. (calculating the future value of an annuity) If you invest
$100 a year for 20 years at 6% annual interest, how much will you
have at the end of the 20th year?
2. (calculating the present value of an annuity) How much would
you be willing to pay today for an investment that pays $700 a year
at the end of the next 5 years? (Your required rate of return is 6%
a year.)
3. (Rate of return of an annuity) You would like to have
$1,000,000 40 years from now, but the most you can afford to invest
each year is $1,000. What annual rate of return will you have to
earn to reach your goal?
4. (Monthly compounding) If you bought a $1,000 face value CD
that matured in six months, and which was advertised as paying 6%
annual interest, compounded monthly, how much would you receive
when you cashed in your CD at maturity?
5. (Annualizing a monthly rate)
Your credit card statement says that you will be charged 1.03%
interest a month on unpaid balances. What is the Effective Annual
Rate (EAR) being charged?
6. (Monthly loan payment) Best
Buy has a flat-screen HDTV on sale for $1,799. If you could borrow
that amount from Carl's Credit Union at 6% for 1 year, what would
be your monthly loan payments?
7. (PV of a perpetuity) If your
required rate of return was 6% a year, how much would you pay today
for $100 a month forever? (that is, the stream of $100 monthly
payments goes on forever, continuing to be paid to your heirs after
your death)
8. (PV of an uneven cash flow
stream) what is the PV of the following project? (Assume r = 7%)
Year Cash Flow
1 -$1,000
2 - $2,000
3 - $3,000
4 $4,000
9. (FV of an uneven cash flow
stream) what is the FV at the end of year 4 of the following
project? (Assume r = 7%) Year Cash Flow
1- $1,000
2 - $2,000
3 - $3,000
4 - $4,000
