1. You have finally graduated from college and are doing a little retirement planning. You plan to retire in 40 years. At that time you want to have a million dollars in savings. If you can receive 5% interest annually on a savings account, what is the fixed amount you have to save each month? How much would you have to save if the money was invested in mutual funds earning 10%?

2. You have just struck oil in the middle of your hay field. An oil company has offered to pay you a perpetual annuity of $12,500 per year for the rights. What is the value of the offer assuming a 10% discount rate? What would be the value of the annuity if the company increased the payments by 3% each year?

3. You have the opportunity of purchasing a farm for $500,000. The owner will allow a $100,000 down payment with the remainder financed in one of the following ways.

1. Equal annual payments with an interest rate of 7% for 20 years.

2. Equal annual payments with an interest rate of 10% for 15 years.

3. Equal quarterly payments with interest rate of 8% for 15 years.

4. Equal principal payments each year with interest rate of 8% for 10 years.

Determine the following:

a. The payments for options 1-3.

b. The total interest paid for options 1-3.

c. Principal and interest paid in each of the first 4 years for option 3 and 4. (you may not know how to do option 4).

d. Which option (1-4) would you choose? Why?

Hint For option 3 to find the principal and interest in each of the first 4 years. Solve the problem in the calculator Hit shift amort and see 1-1 Type in 1 input 4 (for payments 1 through 4 Hit shift amort Hit = interest will come up, hit = again and the principle will be displayed. You can continue to hit the equals button and it will go through all of them again. Hist shift amort again and it will display per 5-8. hit the equals to find the information For year 3 hit shift amort and then equals Same for year 4.