1)
You have a chance to buy an annuity that pays $16,300 at the end of each year for 3 years. You could earn 5.2% on your money in other investments with equal risk. What is the most you should pay for the annuity?
2)
You want to quit your job and go back to school for a law degree 4 years from now, and you plan to save $2,000 per year, beginning immediately. You will make 4 deposits in an account that pays 5.6% interest. Under these assumptions, how much will you have 4 years from today?
3)
Suppose you have $1,800 and plan to purchase a 10-year certificate of deposit (CD) that pays 12.9% interest, compounded annually. How much will you have when the CD matures?
4)
You are negotiating to make a 7-year loan of $25,000 to Breck Inc. To repay you, Breck will pay $3,100 at the end of Year 1, $6,200 at the end of Year 2, and $9,300 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of each year from Year 4 through Year 7. Breck is essentially riskless, so you are confident the payments will be made. You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year loan. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?
5)
Sam was injured in an accident, and the insurance company has offered him the choice of $18,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.8%, how large must the lump sum be to leave him as well off financially as with the annuity?
