Question
1. Insurance policy promises you $2,000 per year forever. What is the present value of this policy if the discount rate is 5%? 2. How
1. Insurance policy promises you $2,000 per year forever. What is the present value of this policy if the discount rate is 5%?
2. How many years will it take your $4,000 investment to grow to $16,000 if you are earning a 6% rate of return?
3. You would like to buy a car in 5 years. In order for you to do this, you figure you will need to have saved up at least $15,000 at that point. Next year you will start making annual payments into an account promising a 7% annual rate of return. How much will your annual payments have to be in order to reach your goal amount?
4. Say you deposit $100 into an account today. The bank promises you 6% interest compounded monthly. How much will you have in your account after 10 years?
5. You are promised a series of cash flows with the first cash flow of $1000 starting next year. The cash flows will grow at a constant rate of 5% per year. You will receive a total of 10 annual cash flows. What would you pay for this opportunity if your required rate of return is 8%?
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