4. Suppose you invest $5,000 per year for three years at an interest rate of 7.25%. After year 3, you make no new investments, but leave your money invested. How much money will you have in 15 years?

5. You receive $100 from your grandmother. Ally Bank will guarantee a 1% annual interest rate indefinitely. How long will it take to quintuple your money? (That is, you have 5 times more money).

7. Suppose you charge me a 9% annual interest rate and I promise to pay you $3,000 a year for four years (first payment is one year from today) plus $9,000 five years from now. How much is this stream of cash flows worth today?

8. Lionel Messi has decided to move to Virginia and play for the Richmond Kickers in their new Seniors League. The Kickers have offered Mr. Messi 3 payment schemes to choose between. Each involves a signing bonus payable immediately and three years of salary payable at the end of each year. The first scheme calls for Messi to receive a signing bonus of $25 million and a salary of $3 million per year for 3 years. The second calls for him to receive a signing bonus of $12.5 million and an annual salary of $8 million per year. The third scheme calls for Messi to receive a signing bonus of $5 million and annual salaries of $8 million, $12 million, and $15 million. Messi has sought your advice on this choice of payment schemes. Advise him on which scheme to pick. Use an annual interest rate of 8% to evaluate the alternatives.

9. You are in the last four years of an annual payment loan with a bank. Your payment schedule is as follows: Today	$0
End of Year 1	$5000
End of Year 2	$3000
End of Year 3	$2000
End of Year 4	$1000

A loan shark offers to refinance your loan. She will pay the remainder your loan in return for taking out the following loan with her: $800 a year in perpetuity. Assuming the interest rate on both loans is 8%, should you accept her offer?

10. Suppose that you promise to pay your sister $10,000 a year for five years with the first payment occurring one year from today. If the interest rate is 5%, what will this stream of cash flows be worth to her 11 years from now?

11. You own a perpetuity that pays $300 a year at the end of each year (starting in year 1).

(a) If the current appropriate annual interest rate is 3%, what is the current value of the perpetuity?

(b) If interest rate rises to 5%, what is the new value of the perpetuity?

12. You own a British consol bond (a perpetuity) that pays 10 a year at the end of each year. The current appropriate annual interest rate is 4%. Someone offers to buy the consol bond for 400. Should you accept their offer?

FIN 3134/5024 ASSIGNMENT 1 - ALL SECTIONS DUE MONDAY, 1/30 BY NOON TURN IN BY SUBMITTING ON CANVAS Assignment Guidelines: These assignments are for your benefit, and will be graded on the basis of what is an honest effort, rather than getting all questions 100% correct. Please show some work or reasoning when appropriate, a sheet of answers with no supporting work is not helpful. Again, please turn in your assignment electronically via Canvas. A scanned copy of handwritten work is fine, no need to type up the assignment unless that is your preference. Problems: 1. Suppose that you invest $12,000 today, and the investment earns 6% a year (i.e., 6% is the rate of return). What will your investment be worth in 10 years? 2. Suppose that I offer to pay you $25,000 in 8 years. How much is that worth to you today if the annual interest rate is 10%? 3. Suppose that you borrow $25,000 from me today and pay me $39,671.86 in 6 years. What is the rate of return on this loan? 4. Suppose you invest $5,000 per year for three years at an interest rate of 7.25%. After year 3, you make no new investments, but leave your money invested. How much money will you have in 15 years? 5. You receive $100 from your grandmother. Ally Bank will guarantee a 1% annual interest rate indefinitely. How long will it take to quintuple your money? (That is, you have 5 times more money). 6. Your buddy wants to borrow $2,000 for this great scheme he has. He promises that he can either pay you back $6,000 in five years or $15,000 in ten years. Assuming he will pay you back either way, which is the better option? 7. Suppose you charge me a 9% annual interest rate and I promise to pay you $3,000 a year for four years (first payment is one year from today) plus $9,000 five years from now. How much is this stream of cash flows worth today? 8. Lionel Messi has decided to move to Virginia and play for the Richmond Kickers in their new Seniors League. The Kickers have offered Mr. Messi 3 payment schemes to choose between. Each involves a signing bonus payable immediately and three years of salary payable at the end of each year. The first scheme calls for Messi to receive a signing bonus of $25 million and a salary of $3 million per year for 3 years. The second calls for him to receive a signing bonus of $12.5 million and an annual salary of $8 million per year. The third scheme calls for Messi to receive a signing bonus of $5 million and annual salaries of $8 million, $12 million, and $15 million. Messi has sought your advice on this choice of payment schemes. Advise him on which scheme to pick. Use an annual interest rate of 8% to evaluate the alternatives. 9. You are in the last four years of an annual payment loan with a bank. Your payment schedule is as follows: Today End of Year 1 End of Year 2 End of Year 3 End of Year 4 $0 $5000 $3000 $2000 $1000 A loan shark offers to refinance your loan. She will pay the remainder your loan in return for taking out the following loan with her: $800 a year in perpetuity. Assuming the interest rate on both loans is 8%, should you accept her offer? 10. Suppose that you promise to pay your sister $10,000 a year for five years with the first payment occurring one year from today. If the interest rate is 5%, what will this stream of cash flows be worth to her 11 years from now? 11. You own a perpetuity that pays $300 a year at the end of each year (starting in year 1). (a) If the current appropriate annual interest rate is 3%, what is the current value of the perpetuity? (b) If interest rate rises to 5%, what is the new value of the perpetuity? 12. You own a British consol bond (a perpetuity) that pays 10 a year at the end of each year. The current appropriate annual interest rate is 4%. Someone offers to buy the consol bond for 400. Should you accept their offer