1. Colin has inherited $6,000 from the death of Grandma Anna. He would like to use this money to buy his mom Hayley a new scooter costing $7,000 2 years from now. Will Colin have enough money to buy the gift if he deposits his money in an account paying 8 percent compounded semi-annually?

2. A wealthy industrialist wishes to establish a $2,000,000 trust fund which will provide income for his grandchild into perpetuity. He stipulates in the trust agreement that the principal may not be distributed. The grandchild may only receive the interest earned. If the interest rate earned on thetrust is expected to be at least 7 percent in all future periods, how much income will the grandchild receive each year?

3. Mr. Knowitall has been awarded a bonus for his outstanding work. His employer offers him a choice of a lump-sum of $5,000 today, or an annuity of $1,250 a year for the next five years. Which option should Mr. Knowitall choose if his opportunity cost is 9 percent?

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