What price are you willing to pay for an annuity that pays out $100 each year for the next 5 years given that you require a 10% return on your investment?

(Hint: We need to calculate the PV of each Cash flow)

2. Suppose you purchase an asset for $100,000 today that you are able to invest in the market earning an 11% return per year for 10 years? Inflation is held constant at 3% a year. What is the real value of that investment in 10 years?

3. Which of the following is riskier (from an investors perspective)?

A. Equity

B. All of equally risky

C. US Treasury Bonds

D. Bonds/Fixed Income

4. Which of the following generally has a lower required return for investors?

A. Bonds/Fixed Income

B. Equity

C. Both have equal costs of capitol

5. What is the value of the following cash flows given an interest rate of 5%? You receive $100 upfront. $150 at the end of year 1. $0 at the end of year 2. $466 at the end of year 3. $242 at the end of year 4.

6. Suppose that you want to retire 25 years from today. Every year in retirement, you would like to be able to withdraw $60,000 off just interest income.

Given that you already have $50,000 in your retirement account, how much do you need to deposit today so that you have enough funds for retirement? Assume you invest in the stock market initially (with an average rate of return of 8%) but will switch to interest-paying bonds (3% annual interest rate) right when you retire.