1. Calculating Annuities [LO1] You are planning to save for retirement over the next 30 years. To do this, you will invest $700 a month in a stock account and $300 a month in a bond account. The return of the stock account is expected to be 11 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with a 9 percent return. How much can you withdraw each month from your account assuming a 25-year withdrawal period?

2. Growing Annuity [LO1] Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $50,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next year. You have decided that one year from today you will begin depositing 5 percent of your annual salary in an account that will earn 11 percent per year. Your salary will increase at 4 percent per year throughout your career. How much money will you have on the date of your retirement 40 years from today?

3. Calculating the Number of Payments [LO2] Youre prepared to make monthly payments of $340, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $20,000?

4. Calculating Loan Payments [LO2] You need a 30-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 6.35 percent APR for this 360-month loan. However, you can afford monthly payments of only $1,150, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $1,150?

5. Present and Future Values [LO1] The present value of the following cash fl ow stream is $6,550 when discounted at 10 percent annually. What is the value of the missing cash flow ? Year Cash Flow 1 2 3 4 $1,700 ? 2,100 2,800

6. Calculating Present Values [LO1] You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $500,000 per year. Thus, in one year, you receive $1.5 million. In two years you get $2 million, and so on. If the appropriate interest rate is 9 percent, what is the present value of your winnings?

7. Present Value and Break-Even Interest [LO1] Consider a fi rm with a contract to sell an asset for $165,000 four years from now. The asset costs $94,000 to produce today. Given a relevant discount rate on this asset of 13 percent per year, will the fi rm make a profit on this asset? At what rate does the fi rm just break even?

8. Future Value and Multiple Cash Flows [LO1] An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the childs birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company: First birthday: Second birthday: Third birthday: Fourth birthday: Fifth birthday: Sixth birthday: $ 900 $ 900 $1,000 $1,000 $1,100 $1,100 After the childs sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $500,000. If the relevant interest rate is 12 percent for the first six years and 8 percent for all subsequent years, is the policy worth buying?