a. If you invest $1000 a year at the end of each year for the next twenty-five years in a broadly-based stock market fund which historically has earned 8% per year, how much will you expect have at the end of these 25 years if you believe stock market history is an excellent guide to the future?

b. You are seriously considering setting up your own business. You will need to borrow $125,000 to start your business. A private equity firm is willing to lend you the money for a payment of $16000 a year for the next ten years, after which your debt will be settled. What interest rate (the rate of return) is the private equity firm receiving on this loan made to you.