You have just received a windfall from an investment you made in a friend's business. He will be paying you $25,264 at the end of this year,$ 50,528 at the end of the following year, and $75,792 at the end of the year after that (three years from today). The interest rate is.13.1% per year.

a. What is the present value of your windfall?

b. What is the future value of your windfall in three years (on the date of the last payment)?

2)

You have a loan outstanding. It requires making 3 annual payments at the end of the next 3 years of

$1,000 each. Your bank has offered to allow you to skip making the next

2 payments in lieu of making one large payment at the end of the loan's term in 3 years. If the interest rate on the loan is 5.00% , what final payment will the bank require you to make so that it is indifferent between the two forms of payment?

The present value of the cash flows is ---------------- (Round to the nearest dollar.)

3) The British government has a consol bond outstanding paying 400

per year forever. Assume the current interest rate is

4% per year.

a. What is the value of the bond immediately after a payment is made?

b. What is the value of the bond immediately before a payment is made?

4)

You are head of the Schwartz Family Endowment for the Arts. You have decided to fund an arts school in the San Francisco Bay area in perpetuity. Every 5 years, you will give the school

$500,000. The first payment will occur 5 years from today. If the interest rate is 11.2% per year, \

what is the present value of your gift?-

5) You are 24 years old and decide to start saving for your retirement. You plan to save $5,000 at the end of each year (so the first deposit will be one year from now), and will make the last deposit when you retire at age 65. Suppose you earn 6% per year on your retirement savings.

a. How much will you have saved for retirement?

b. How much will you have saved if you wait until age 32 to start saving (again, with your first deposit at the end of the year)?

6) You are thinking of building a new machine that will save you $1,000 in the first year. The machine will then begin to wear out so that the savings decline at a rate of 2%

per year forever.

What is the present value of the savings if the interest rate is 5% per year?

7) A rich aunt has promised you $3,000 one year from today. In addition, each year after that, she has promised you a payment (on the anniversary of the last payment) that is 5% larger than the last payment. She will continue to show this generosity for 20 years, giving a total of 20

payments. If the interest rate is 5% , what is her promise worth today?

The present value ----------

8) Suppose you currently have $4,600 in your savings account, and your bank pays interest at a rate of 0.52% per month. If you make no further deposits or withdrawals, how much will you have in the account in 44 years?

In 44 years' time, you will have $ ----------in the account

9)Suppose you currently have $5,000 in your savings account, and your bank pays interest at a rate of 0.5% per month. If you make no further deposits or withdrawals, how much will you have in the account in

55 years?

In 55 years' time, you will have $------------ in the account

10)

Your firm spends $5,000 every month on printing and mailing costs, sending statements to customers. If the interest rate is 0.5% per month, what is the present value of eliminating this cost by sending the statements electronically?

This cost has a present value of ------------

11)

You have just entered an MBA program and have decided to pay for your living expenses using a credit card that has no minimum monthly payment. You intend to charge $1,000 per month on the card for the next 21 months. The card carries a monthly interest rate of 1%. How much money will you owe on the card 22 months from now, when you receive your first statement post-graduation?

12)

You are thinking of purchasing a house. The house costs $350,000.

You have $50,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30year mortgage that requires annual payments and has an interest rate of 7% per year. What will your annual payment be if you sign up for this mortgage?

13)

You are 35 years old, and decide to save $7,500

each year (with the first deposit one year from now), in an account paying 7% interest per year. You will make your last deposit 30 years from now when you retire at age 65. During retirement, you plan to withdraw funds from the account at the end of each year (so your first withdrawal is at age 66). What constant amount will you be able to withdraw each year if you want the funds to last until you are age 95 ?

14)

You have an investment opportunity that requires an initial investment of $6,500 today and will pay

$8,000 in one year. What is the IRR of this opportunity?

The internal rate of return (IRR) is --------