Question
1) Suppose that today you deposit the amount of $525 in a bank. How much would the deposit grow to at the end of year
1) Suppose that today you deposit the amount of $525 in a bank. How much would the deposit grow to at the end of year 26 if the interest rate is 2.00%?
2) A plaintiff in a high profile legal suit was offered the following out of court settlement: We the defendent will pay the lump sum of $195 to the plaintiff in exactly 7 years. Or, alternatively, we will negotiate a lump sum payment today. According to time value of money, what lump sum amount today will have the same present value as the offered settlement if the interest rate of 3.2%?
3) Consider a lottery that pays to the winner an annual annuity of $70 that begins in one year and continues for 6 consecutive years with one exception -- the payment at the end of year 3 (and only in this year) is not $70 but instead is $105. Using an interest rate of 7%, determine the present value of this prize.
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