1. You set aside $100,000 at the end of each year for 20 years in equal annual end-of-the-year deposits (i.e., 20 deposits of $100,000 each, the first deposit is one year from today) into your account paying 7% interest annually. How much money will be in your account after the last deposit is made?
2. You will retire when you are 65. Which of the following choices will result in a greater future value at age 65? Choice number 1 is to invest $3,000 per year from ages 20 through 26 (a total of seven investments) into an account and then leave it untouched until you are 65 (another 39 years). Choice number 2 is to begin at age 27 and make $3,000 deposits into an investment account every year until you are 65 years old (a total of 39 investments). Each account earns an average of 10% per year. (The investments are end-of-year payments.) Explanation: C) Choice 1:
3. You have the opportunity to lease a date palm grove in Al Ain with expected annual NET cash (after paying for expenses) from fruits of $10,000 per year for eight years. If the interest rate is 12% per year, how much maximum you would be willing to pay for leasing this property? (Hint: find the PV of these cash flows).
4. ) You have $50,000 invested in an account paying 3.50%. If you just finished paying your total college expenses for the coming year and your college costs $19,000 per year, how many years will your money last? (Treat your costs like an annuity with the first payment one year from today.)
5. You have a choice between a lottery lump sum payout of $10,000,000 today or a series of twenty-five annual annuity payments $800,000 (first payment one year from today). At an interest rate of of 6.50%, which one do you choose?
6. Your company intends to finance the purchase of a new construction crane. The cost is $1,500,000. Compare the interest cost of three different types of loans for 10 years (discount loan, interest only loan, amortized loan) at the interest rate of 8%.