SHOW WORK, Problem 1:

A. What would you have twenty years from today if you invest $4,000 per month, starting today for a total of 120 months? Assume your interest rate is 9% (compounded monthly).

B. You have the option of either receiving (a) $190,000 per year starting today for ten years or (b) you can receive $460,000 four years from today, $730,000 six years from today and $1,000,000 eight years from today? Your opportunity cost is 10% (compounded semi-annually). Which is better?

C. You plan on purchasing a retirement home in Menomonie, WI ten years from today. The home would cost $200,000 today and you feel this will increase 3% 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 $1,000,000 today, or $500,000 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 $500,000 five years from today or $1,000,000 thirty years from today. What interest rate makes them equivalent?