Problem 1:

You want to buy a house in 4 years and expect to need $25,000 for a down payment. If you have $15,000 to invest, how much interest do you have to earn (compounded annually) to reach your goal?

Problem 2:

You want to buy your dream car, but you are $5,000 short. If you could invest your entire savings of $2,350 at an annual interest of 12%, how long would you have to wait until you have accumulated enough money to buy the car?

Problem 3:

What is the future value of cash flows 1-5 at the end of year 5, assuming a 6% interest rate (compounded annually)?

End of year

Cash flow

1

$2,500

2

3,000

3

1,250

4

3,500

5

1,250

6

4,530

7

2,350

Problem 4:

You are planning your retirement and you come to the conclusion that you need to have saved $1,250,000 in 30 years. You can invest into an retirement account that guarantees you a 5% annual return. How much do you have to put into your account at the end of each year to reach your retirement goal?

Problem 5:

You will receive a stream of payments beginning at the end of year 1 and the amount will increase by $10 each year until the final payment at the end of year 5. If the first payment is $50, what amount will you have at the end of year 5 if you can invest all amounts at a 7% interest rate?

Problem 6:

You will receive a stream of annual $70 payments to begin at the end of year 0 until the final payment at the end of year 5. What amount will you have at the end of year 5 if you can invest all amounts at a 11% interest rate?