Instruction:

Show the work for full credits. That means that for each question, you need to type out the equation and use Excel functions to find the answer. Round your answers to two decimal places. For example, if a question asks you how much is the present value for an annuity of 10 years with annual payment of $20 and a discount rate of 7%?

You first have to type: PV = 20{1/0.07 1/[0.07(1+0.07)^10]}

Then use the excel function =pv(0.07,10,-20) to find the answer of $140.47.

The portions highlighted in red are the ones you have to type on your assignments.

Problems:

1. You just won the lottery! You will receive a payment of $10,000 at the end of year forever. What is the value of the prize today if the discount rate is 6%?

1. What is the value today of 20 annual payments of $50 received at the end of the year if the discount rate is 5%?

1. A relative will support your education by paying you $500 a month for 50 months. If you can earn 7 percent on your money, what is this gift worth to you today? Hint: The payments are monthly. Need to convert r into a monthly basis.

1. Aidan can afford $240 a month for five years for a car loan. If the interest rate is 8.5 percent, what is the most he can afford to borrow?

1. Assume you work for an employer who will contribute $60 a week for the next 20 years into a retirement plan for your benefit. At a discount rate of 9 percent, what is this employee benefit worth to you today? There are 52 weeks a year. Hint: This compounds weekly. Need to adjust t and r to the weekly basis.

1. If you have to pay $450 per month for 3 years for your car loan, how much did you borrow? Assume the interest rate is 6% per year?

Hint: This is monthly payment. Need to convert r and t into a monthly basis.

1. A cup of Starbucks latte is about $3 including tax. If you quit drinking latte and save the money, how much will you have in 40 years when you retire. Assume 30 days a month and you invest the money monthly in the stock market with an average return of 8%.

1. As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6 percent on your money, which option should you take and why?