You plan to make a series of deposits in an individual retirement account. You will deposit $1,000 today, $2,000 in two years, and $2,000 in five years. If you withdraw $1,500 in three years and $1,000 in seven years, assuming no withdrawal penalties, how much will you have after eight years if the interest rate is 7%? What is the present value of these cash flows?

Problem 3

Suppose you borrow $10,000. You are going to repay the loan by making equal annual payments for five years. The interest rate on the loan is 14% per year. Prepare an amortization schedule for the loan. How much interest will you pay over the life of the loan?

Problem 4

You've recently finished your MBA at the Darnit School. Naturally, you must purchase a new Lexus ES 350 immediately. The car costs about $42,000. The bank quotes an interest rate of 15% APR for a 72-month loan with a 10% down payment. You plan on trading the car in for a new one in two years. What will your monthly payment be? What is the effective interest rate on the loan? What will the loan balance be when you trade the car in?