Question 1:

a. If the appropriate discount rate for the following cash flows is 9.75% per year, what is the present value of the cash flows?

Year	Cash Flow
1	$2,800
2	0
3	8,100
4	1,940

Answer: Present value = 2800/1.0975 +0/(1.0975^2) + 8100/(1.0975^3) + 1940/(1.0975^4)=$10015.75

You are to make monthly deposits of $150 into a retirement account that pays 11 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 20 years?

Answer: 150*(1+11%/12month)^(20*12months)= $129,845.71

Beginning three months from now, you want to be able to withdraw $1,200 each quarter from your bank account to cover college expenses over the next four years. If the account pays 0.50 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next four years?

Answer: 1200*(1+0.50%)^(4years*4quarters per year)= $18407.91

You want to be a millionaire when you retire in 40 years. How much do you have to save each month if you can earn a 10 percent annual return?

Answer: $1000,000/(1+10%/12)^(40*12 months)= $158.13

While Steve was a college student, he borrowed $12,000 in student loans at an annual interest rate of 9 percent. If Steve repays $1,500 per year, how long will it take him to repay the loan?

Answer: Log($12000/$1500)/ Log(9%)= 14.77

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