1. You are a freshman in high school reviewing your options for tuition at the state university. Tuition is $9,000 per year now and is expected to grow by 3.0% per year for the foreseeable future. What will tuition be in 4 years when you enroll as a freshman?

2. You currently have $1,000 in a savings account which pays 0.75% per month. If you make no further deposits or withdrawals how much will you have in the account at the end of 6 years?

3. How long will it take for $493,628.12 invested at 4.0% p.a. today to grow to $1 million?

4. You bought a savings bond with a maturity value, in 10 years, of $1,000. If you paid $500 for this bond, what annual rate of interest are you earning? (8%)

5. You just won the grand prize in the state lottery. You will receive 20 annual payments of $1 million, starting immediately. You have the option of taking a lump sum payment (single payment) immediately, in place of the 20 annual payments. If you are able to invest the funds at 4.5% p.a., what single payment would you accept?

6. Calculate the present value of $550,000 due exactly 8 years from today. Use a discount rate of 4.5% p.a.

7. An aunt wishes to pass on some of her wealth to her nieces and nephews. She decides to give each a perpetuity that pays $36,000 per year starting a year from now and increasing by 2% per annum. How much will she have to set aside for each child? Use a discount rate of 5%.

8. Illinois Lottery sells an instant game that offers a grand prize of $1,000 per week for life. The fine print states that the prize will be paid either as $1,000 per week for the lifetime of the winner or as a cash option payment of $762,000. Assume that at the time the winning ticket is submitted the winner will receive either the $762,000 cash option payment or the first of the $1,000 weekly payments. Using a discount rate of 5.2% p.a., how many weeks on average does the lottery estimate it will make payments to each winner?

9. At age 25, Robert decides to save $4,000 per year (starting a year from now) for each of the next 10 years and save nothing thereafter. How much will he have accumulated at age 65 if he is earning a stated rate of 5.0% p.a.? [Interest accrues at 5% p.a. on the balance he has accumulated after he stops adding funds.]

10. Alice borrowed $18,500 for 5 years to finance the purchase of her car. The loan was priced at a stated annual rate of 7.2% p.a. and was repayable in 60 equal monthly installments. The day after she pays her 48^th installment, she learns that she won a large prize in a raffle. She decides that she will immediately prepay her car loan. There is no prepayment penalty attached to her loan. How much will she have to pay to retire this debt? (Hint: First calculate the amount of her monthly payment. Use that to figure how much she owes after the 48^th installment.)

11. Your uncle loaned you $8,000 in August, at the start of your junior year in college, to help with expenses. You have agreed to repay this loan in five equal annual installments of $2,000 starting three years after you receive the loan. a) Using a rate of 5.65% p.a., is your uncle making money or losing money? b.) What level of 5 equal annual payments would put your uncle in a breakeven position?

12. A recent Powerball jackpot was announced at $380 million payable in 30 equal annual payments over 29 years. The winner has the option of receiving 1/30^th of the jackpot each year, starting immediately, or a lump sum cash option of $256.8 million. What rate of discount was used to calculate the value of the cash option?

13. Jack Straw is now 65 years old and has accumulated $850,000 for his retirement. He wants this sum to pay a steady annual income for the next twenty years, starting one year from now. Assuming a discount rate of 3.45% p.a., what kind of annual income can he expect for the twenty year period?

14. You won a $50,000 prize which will be paid in annual installments under one of two options as follows: (figures in thousands of dollars)