1. John deposited $1,000 in an account earning 4% interest compounded annually, how much will his account be worth in 20 years?

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2. You have decided to invest $3,000 per year into a mutual fund for the next 30 years with expectations of a 10% annual rate of return, how much will your account be worth in 30 years?

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3. An opportunity exists to purchase a government bond that will be worth $1,000 in 30 years, the discount rate is 5%, how much will you pay to purchase this zero coupon bond?

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4. You could choose between receiving $50,000 each year for the next 20 years or you can take a lump-sum payment of $400,000 today. Which would you choose? The interest rate is 6% for all future periods. (hint: compare the present value of the annuity to the lump sum)

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5. You have a goal of retiring in 30 years with $1,000,000 the best way to set aside funds to reach this goal is to make annual contributions into an account which pays an expected 8% interest rate compounded annually. How much should you set aside each year to achieve your goal?

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Use the information above to answer how much you would have to contribute if you started today instead of in one year. (Annuity due)

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How large of a lump sum would you have to deposit to meet your goal? (Hint 2^nd PMT, 2^nd ENTER)

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6. You are considering the purchase of a home and need to determine your payments, if you borrow $100,000 at 6% annual interest rate for 30 years how much is your annual mortgage payment? Also, determine the monthly mortgage payment.

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7. You would like to establish an endowment fund so that a needy student can purchase text- books. It is estimated that $2,000 per year is the amount of cash flow the endowment needs to generate. How large of a check do you need to write? I = 5%

8. A $1,000 investment in Harley Davidson 20 years ago is now worth $4,656. Calculate your average annual rate of return (geometric mean)?

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9. A preferred stock issued by AT&T Corporation pays $2.25 per year, your required rate of return is 8%, how much would you pay per share to purchase this preferred stock?

10. A firm will pay a dividend next year of $2.20 the dividend is expected to increase each year forever by 3%, your required rate of return is 13% how much would you pay for one share of the stock?

Use the formula for the constant growth model given below.

P₀ = D₁ / (k - g)

11. A project will generate cash flows of $10,000 per year for the next 5 years, the cost of the project is equal to $30,000. What is the internal rate of return on this project?

Time period

0 1 2 3 4 5

Cash flow

-30,000 10,000 10,000 10,000 10,000 10,000

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12. A company has paid the following dividends to shareholders

Year Dividend

2013 $1.50

2012 $1.40

2011 $1.30

2010 $1.20

2009 $1.00

From the information given above determine the growth rate in this company's dividends using the point-to-point method.

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