1) You have started your first job today, and you want to buy a house within 3 years. You are currently saving for the down payment. You plan to save $5,000 the first year. You also anticipate that the amount you save each year will rise by 10 percent a year as your salary increases over time. Interest rates are assumed to be 7 percent, and all savings occur at year-end. How much money will you have for a down payment in three years?

2) You are indecisive about which stock to buy IBM, which is selling for $90.70 a share; or Dell, which is selling for $38.40 a share. IBM stock promises to pay annual dividends of $1.00, $1.50, and $2.00 over the next three years respectively, and you estimate it can be sold for $110 at the end of the third year. Dell will not pay any dividends the first year, but will pay 50 cents in annual dividends the two years after that and is probably going to be selling for $50 in three years. Which stock would you buy if stocks from computer manufacturers typically yield 8.5%?

3) You are 50 years old and proud of having $75,000 invested in a mutual fund earning an impressive 17% per year. You want to retire when you are 65 years old and are confident youll reach your goal of $1,000,000 by then. Will you make it? If not, what yield would see that you do?

4) Jack and Jill want to retire when they accumulate $1,500,000 in their individual retirement funds. They figure that they can just live off on the interest after that on perpetuity, no matter how long they live. Both of them are starting off today with $100,000 each, but Jill has her money invested in a mutual fund earning 11% per year, compounded semi-annually, while Jack is earning 10.50% with daily compounding. How long will it take each to retire? Who will retire first?

5) You just turned 18 years old today and decided you want to accumulate $5,000,000 for retirement. You figure you can start making weekly deposits into a mutual fund that promises to pay an average yield of 13% per year. You intend to make the first deposit at the end of this week and retire exactly on the day of your 65th birthday. Assuming that the predicted yield of 13% is indeed realized, how much money should you deposit weekly in the mutual fund to meet your goal?

6) You have a turtle that you love to death. Her name is Cassiopeia. You found her roaming the streets two years ago, but have no idea how old she actually is. You do know that turtles live longer than humans, so you figure that you want to leave an endowment in a trust to secure a place for her in a pet resort for as long as she lives (whatever that may be). How much money would it take to secure $1,800 a year in - 2 of 2 - perpetuity from the trust, if the annual rate of return of the trusts investment portfolio is 7%?

7) Your parents are planning to retire in 18 years. They currently have $250,000, and they would like to have $1,000,000 when they retire. What annual rate of interest would they have to earn on their $250,000 investment to reach their goal, assuming they save no more money? (Hint: Utilize algebra to solve for i, use trial and error, the financial calculator, or use a spreadsheet.)

8) You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. After giving her the standard reprimand for waiting so long to start saving for retirement, you advise her to put $5,000 a year into the stock market. You estimate that the markets effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year.

a) If the client follows your advice, how much money will she have by age 65?

b) How much will she have by age 70?