Problem 1: (30 pts)

1. What would you have thirty-years from today if you invest $2,000 per month, starting today for a total of 120 months? Assume your interest rate is 9% (compounded monthly).

2. You have the option of either receiving (a) $285,000 per year starting today for ten years or (b) you can receive $690,000 four years from today, $1,095,000 six years from today and $1,500,000 eight years from today? Your opportunity cost is 10% (compounded semi-annually). Which is better?

3. You plan on purchasing a retirement home in Wisconsin ten years from today. The home would cost $250,000 today and you feel this will increase 2% per year for the next 10 years. You know you will need 20% of the sales price at the time of purchase for a down payment so you would like to save on a monthly basis with the first payment going in one month from today and the last payment going in the month you purchase the home. Assume your money can earn 9% (compounded monthly) for the next ten years, what should these payments be so that you have enough ten years from now for the down payment?

D. If you were offered $2,500,000 today, or $1,250,000 per year for five years with the first of these payments coming ten years from today, which would you take and why? Assume you have an 8% opportunity cost.

E. You can receive $400,000 five years from today or $1,000,000 twenty years from today. What interest rate makes them equivalent?

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