Chapter 9 Assignment

1. Your uncle offers you a choice of $100,000 in 10 years or $45,000 today. If money is discounted at 8 percent, which should you choose?

2. The Western Sweepstakes has just informed you that you have won $1 million. The amount is to be paid out at the rate of $50,000 a year for the next 20 years. With a discount rate of 12 percent, what is the present value of your winnings?

3. Determine the amount of money in a savings account at the end of five years, given an initial deposit of $3,000 and a 8 percent annual interest rate when interest is compounded (a) annually, (b) semiannually, and (c) quarterly.

4. Alex Bell has just retired from the telephone company. His total pension funds have an accumulated value of $200,000, and his life expectancy is 16 more years. His pension fund manager assumes he can earn a 12 percent return on his assets. What will be his yearly annuity for the next 16 years?

5. What is the future value of a $1,000 investment today at 10% annual interest compounded semi-annually for five years?

6. Ali borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 15 equal annual payments. How much are the annual payments?