1. A loan company will lend you $10,000 today with terms that require you to pay off the loan in thirty-six monthly installments of $500 each. What is the effective annual rate of interest that the loan company is charging you?
2. Suppose you wish to retire forty years from today. You determine that you need $50,000 per year once you retire, with the first retirement funds withdrawn one year from the day you retire. You estimate that you will earn 6% year per year on your retirement funds and that you will need funds up to and including your 25 birthday after retirement.
a. How much must you deposit in an account today so that you have enough funds for retirement?
b. How much must you deposit each year in an account, starting one year from today, so that you have enough funds for retirement?
3. Using interest rate of 5% per year, what is the value today of the following cash flows:
|
Years From today
|
Cash flow ($)
|
|
1
|
0
|
|
2
|
0
|
|
3
|
10,000
|
|
4
|
10,000
|