2. Clayton just won $500000 in a lottery. He wants to withdraw $4000 per month for the next 50 years. His savings account earns 3% annual interest, compounded monthly. Which of the following should be used to determine if Clayton can afford to retire now and live off his lottery winnings?

A. present value of an ordinary simple annuity formula B. simple interest formula C. future value of an ordinary simple annuity formula D. compound interest formula E. none of the above

6. The future value of a loan due to a financial institution in 10 years is $50 000. The financial institution is willing to sell the debt today discounted at 7% per year, compounded monthly. Which formula should we use to calculate the value of the debt today?

A. future value of an ordinary simple annuity formula

B. future value formula

C. present value of an ordinary simple annuity formula

D. simple interest formula

E. present value formula

10. Choose ALL statements that are correct.

A. A bi-weekly compounding frequency means interest is added 26 times during a year.

B. Simple interest shows a linear relation between time and the amount of an investment.

C. When calculating the simple interest earned on an investment for 40 weeks, we substitute t = 40 into the simple interest formula.

D. Compound interest refers to interest that is calculated at regular compounding periods.

E. The number of compounding periods for a quarterly compounding for 3/4 of a year is 0.75.