Suppose you receive $ 110

$110 at the end of each year for the next three years.

a. If the interest rate is 10 %

10%, what is the present value of these cashflows?

b. What is the future value in three years of the present value you computed in (a)?

c. Suppose you deposit the cash flows in a bank account that pays 10 %

10% interest per year. What is the balance in the account at the end of each of the next three years(after your deposit ismade)? How does the final bank balance compare with your answer in(b)?

2.

Today you want to endow a scholarship that will pay $10 000

10000 per yearforever, starting 10 years from now. If theschool's endowment discount rate is 5%, what amount must you donate to endow thescholarship?

The amount you must donate today to endow a scholarship that will pay $10 000 per yearforever, starting in 10 years, is $

. (Round to the nearestcent)

3.

You figure that the total cost of university will be $107 000 per year 18 years from today. If your discount rate is 12% compoundedannually, what is the present value today of three years of university costs starting 18 years fromtoday?

The present value today of three years of university costs starting 18 years from today is $. (Round to the nearestdollar.)

4.

You are trying to decide how much to save for retirement. Assume you plan to save $ 8 000 per year with the first investment made 1 year from now. You think you can earn 10.5% per year on your investments and you plan to retire in 31 years immediately after making your last $ 8 000 investment.

a.How much will you have in your retirement account on the day youretire?

b. If, instead of investing $ 8 000 peryear, you wanted to make one lump sum investment today for yourretirement, how much would that lump sum need tobe?

c. If you hope to live for 23 years inretirement, how much can you withdraw every year in retirement(starting one year afterretirement) so that you will just exhaust your savings after 23 withdrawals(assume your savings will continue to earn 10.5% inretirement)?

d. If, instead, you decide to withdraw $321 000 per year in retirement(again with the first withdrawal one year afterretiring), how many years will it take until you exhaust yoursavings?

e.Assuming the most you can afford to save is $1600 peryear, but you want to retire with $1 000 000 in your investmentaccount, how high of a return do you need to earn on yourinvestments?

5.

You are thinking of building a new machine that will save you $ 3 000 in the first year. The machine will then begin to wear out so that the savings decline at a rate of 3 % per year forever. What is the present value of the savings if the interest rate is 3 % peryear?

6.

You have decided to buy a perpetual bond. The bond makes one payment at the end of every year forever and has an interest rate of 6 %. If you initially put $ 4 000 into the bond, what is the payment every year?