1. A perpetuity of $1,000 per year is said to offer a 12% interest rate. What is its present value? (Hint: an ordinary perpetuity begins at the end of the period.

1. $8,333.33.
2. $9,333.33.
3. $10,000.
4. $12,000.

2. Assume the total expense for your current year in college equals $25,000 due immediately. Your total college expense will remain the same for the next 3 years. Approximately how much would your parents have needed to invest 21 years ago in an account paying 6% compounded annually to cover this stream of cash flows? Assume account will continue to pay 6% compounded annually in 21 years.

1. $28,631.56
2. $27,010.91
3. $25,481.99
4. $29,415.54