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Exercise Problems 1. The US Savings Bonds your grandparents bought for you on your birthday will be worth $1,000 in 3 years. If bonds are
Exercise Problems 1. The US Savings Bonds your grandparents bought for you on your birthday will be worth $1,000 in 3 years. If bonds are currently paying 10% interest with annual compounding, what is the present value of your bond? 2. You just bought a new computer for $3,000. Due to a same-as-cash promotion you don't have to make any payments now. You must pay in full by the end of the second year. If you can earn 8% on your money, how much money should you set aside today in order to make the payment in two years? 3. The IRS just audited you and established that you are liable for $35,000 in back taxes and penalties. They have given you one year to pay. How much money would you need to have in your savings account today to be able to meet that obligation? Assume a yield of 2.3% on the account, and semi-annual compounding. The IRS just audited you and established that you are liable for $35,000 in back taxes and penalties. They have given you one year to pay. How much money would you need to have in your savings account today to be able to meet that obligation? Assume a yield of 2.3% on the account, and monthlycom pounding. 4. An investment promises to pay you $1,000, $1,500, and $1,800 at the end of the next three years, respectively. If your required rate of return on such investments is 10%, what is the present value of the investment? 5
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