1. You are evaluating two investment choices in order to fund an Indiana University endowment.

Choice A is a 25 year annuity that pays $25,000 per year, with the first payment paid at the beginning of year 1.

Choice B is a growing perpetuity that pays $20,000 per year & grows at 3% per year forever; The first payment is made at the end of year 2.

Assume the required rate of return on both products is 10%?

How much more will the growing perpetuity cost to purchase compared to the annuity ?

Round your answer to the nearest whole dollar.

2. On January 1 2021, you will purchase a $350,000 house. To pay for the house you will pay 20% down (in Cash) and borrow the remainder under a 30 year mortgage with a contractual interest rate of 3.35% Your market rate of interest, for the risk you pose, is 4.5% Your payments are due at the end of each month with the first payment due 1/31/2021.

How much interest (rounded to the nearest dollar) will you repay during the time period of 2022-2025 ((the second through fifth year of the loan))

3. You are interested in purchasing an automobile but you require financing. The dealer has provided you with several loan options to finance the purchase. Your market rate of return for the risk that you pose various lenders is 7%; The automobile that you want to purchase has a sticker price of $35,000 and a competitive market value of $31,000. Here are your loan options

Loan 1: loan has a term of 60 months, a contractual rate of interest of 8% and requires a down payment of $1500 for the purchase of the car. The loan allows you to claim a rebate of $1000 on the car at purchase.

Loan 2: The loan has a term of 72 months, a contractual rate of 7.5% and requires a down payment of $500 for the purchase of the car. The loan allows you to claim a $500 rebate

Loan 3: The loan has a term of 36 months a contractual interest rate of 0% and requires $4000 down. No rebate is available for this option.

What is the monthly payment for loan 2 (rounded to the nearest whole dollar)?