1 . What is the present value of $1000 paid at the end of each of the next 100

years if the interest rate is 7% per year?

2 . Assume that your parents wanted to have $160,000 saved for college by your

eighteenth birthday and they started saving on your first birthday. They saved

the same amount each year on your birthday and earned 8% per year on their

investments.

a) How much would they have to save each year to reach their goal?

b) If they think you will take five years instead of four to graduate and decide to

have $200,000 saved just in case, how much more would they have to save

each year to reach their new goal?

3 . Loan amortization schedule John Milo borrowed $150,000 at a 14% annual

rate of interest to be repaid over 5 years. The loan is amortized into five equal,

annual, end-of-year payments.

a. Calculate the annual, end-of-year loan payment.

b. Make a loan amortization schedule showing the interest and principal

breakdown of each of the five loan payments.

c. Explain why the interest portion of each payment declines with the passage of

time.