1. You plan to deposit $1,000 each year into an account that earns 12%, compounded annually.

You will do this for the next 7 years, but then leave the money in the account.

a.

How much will you have in 7 years?

b.

How much will you have in 10 years?

2. You expect to pay $250 each quarter for the next 5 years to pay off a loan. The interest rate on

the loan is 10%, compounded quarterly.

a. What is the value today of these cash flows?

b. How much money can you borrow?

c.

What is the value in 3 years of the remaining cash flows?

d. How much money do you still owe after 3 years?

3.

A five-year annuity of $150 monthly payments starts in three years. The discount rate is 12%,

compounded monthly.

a. What is the value of the annuity today?

b.

What is the value of the annuity in 3 years?

What is the value of the annuity in 5 years?

d. What is the value of the annuity in 10 years?

4.

You have decided to retire and live off of the interest. The bank is offering a guaranteed 4%

return per year and you would like to be able to withdraw $100,000 per year in perpetuity.

a. How much do you need to have today to make this happen?

b. What is the value today of the perpetuity of cash flows?

C.

What is the value in 100 years of the perpetuity of cash flows?

5. A perpetuity of $100,000 per year cash flows starts in 10 years. The discount rate is 4%,

compounded annually.

a. What is the value of the perpetuity todav?

b. What is the value of the perpetuity in 10 years?

c. What is the value of the perpetuity in 50 years?

6. A growing perpetuity of annual cash flows starts with a cash flow of $1,000. Each subsequent

cash flow increases by 3% per year. The discount rate is 10%. The growing perpetuity starts

now, so the $1,000 occurs at the end of this vear.

a. What is the value of the cash flows today?

b. What is the value of the cash flows in 5 years?

c. What is the value of the cash flows in 8 years?

7. You would like to purchase a house in 5 years for $300,000 and be able to make a down

payment of 20% of the price of the house. You have access to an account that earns 6%,

compounded monthly. How much do you have to put into the account each month to be able

to do this?

8.

You are saving for retirement and can currently afford to deposit $500 per month into your

retirement account. You anticipate you will be able to increase that amount by $300 to a total