1. Tracie invested $60,000 in exchange for payments of $2,500 a year forever. What rate of return is she earning?
2. Martha receives $200 on the first of each month. Stewart receives $200 on the last day of each month. Both Martha and Stewart will receive payments for 30 years. The discount rate is 9 percent, compounded monthly. What is the difference in the present value of these two sets of payments?
3. An annuity costs $185,000 today and provides monthly payments of $950 for 40 years. The first payment occurs 1 month from today. What annual rate of return does this annuity offer?
4. A bank is loaning $5,000 for 3 years at an interest rate of 7.5 percent. How much additional interest can the bank earn if it compounds interest continuously rather than annually?