1. In their meeting with their adviser, Mr and Mrs. O'Rourke concluded that they would need $40,000 per year during their retirement years in order to live comfortably. They will retire 10 years from now and expect a 20-year retirement period. How much should Mr and Mrs. O'Rourke deposit now in a bank account paying 9 percent to reach financial happiness during retirement? Answer: The amount of money required at the beginning of the retirement period is PV - $154.239.85 2 Nico is 30 years old and will retire at age 65. He will receive retirement benefits, but the benefits are not going to be enough to make a comfortable retirement life for him, Nico has estimated that an additional $25.000 a year over his retirement benefits will allow him to have a satisfactory life. How much should Nico deposit today in an account paying 6 percent interest to meet his goal? Assume Nico will have 15 years of retirement Answer: P130) - $31.590 3. Calculate the combined future value at the end of year 3 of $1,000 received at the end of year 1.53,000 received at the end of year 2 and 55.000 received at the end of year 3, all sums deposited at 5 percent Answer: FV-59.252 4. Calculate the future value of 56,490 received today and deposited for five years in an account which pays interest of 14 percent compounded semiannually Answer: FV - $12.766 S. Calculate the future value of $10,000 received today and deposited for six years in an account which pays interest of 12 percent compounded quarterly Answer: FV-520,328 6 A generous philanthropist plans to make a one-time endowment to a renowned heart research center which would provide the facility with $250,000 per year into perpetuity The rate of interest is expected to be percent for all future time periods. How large mit the endowment he? Answer: PV =$3,125,000 7. Find the present value of the following stream of a firm's cash flows, assuming that the firm's opportunity cost is percent Amount SHO Year Answer: PV - 38,896,51+ 40,448.10-$79.344.62 & Thelma is planning for her son's college education to begin five years from today, She estimates the yearly twition, books, and living expenses to be 55,000 per year for a four- year degree, assuming th expenses incur only at the end of the year. How much must Thelma deposit foday, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college? Answer: PV 511,270 9. Entertainer's Aid plans five annual colossal concerts, each in a different nation's capital. The concerts will raise funds for an endowment which would provide the World Wide Hunger Fund with $3,000,000 per year into perpetuity. The endowment will be given at the end of the fifth year. The rate of interest is expected to be 9 percent in all future periods. How much must Entertainer's Aid deposit each year to accumulate to the required amount? Answer: CF=$5,569,749 10. Nancy would like to accumulate $10,000 by the end of 3 years from now to buy a sports car from her friend, Jim. She has $2,500 now and would like to save equal annual end-of- year deposits to pay for the car. How much should she deposit at the end of each year in an account paying 8 percent interest to buy the car? Answer: CF=$2110.25