1. You want to endow an annual graduation party at your university. You want the event to be a memorable one, so you budget $30,000 per year forever for the party. If the university earns 8% per year on its investments, and if the first party is in one years time, how much will you need to endow the party?

b. Before accepting the money the President of the student association has asked that you increase the donation to account for the effect of inflation on the cost of the party in future years. Although $30,000 is adequate for next years party, the president estimates that the partys cost will rise by 4% per year thereafter. To satisfy the presidents request, how much do you need to donate now?

2. On a recent trip to the united States, you purchased a ticket in a state lottery. Now you discover that you are the lucky winner of the $30 million prize. You can take your prize money either as (a) 30 payments of $1 million per year (starting today), or (b) $15 million paid today. If the interest rate is 8%, which option should you take. Show calculations

3. James has just turned 35 years old, and he has decided it is time to plan seriously for his retirement. On each birthday, beginning in one year and ending when he turns 65, he will save $10,000 in an RRSP account. If the account earns 10% per year, how much will James have saved at age 65.

4. Security analyst have forecasted the dividends of Hodges Enterprises for the next 3 years as: Dividend in the first year =$1.20, second year = $1.75, and third year = $2.20. The forecasted selling price in 3 years is $48.50. The rate of return for common stock with a risk level comparable to that of Hodges Enterprises is 14%. What is the value of Hodges common stock?