Question 1 - Sarah Wiggum would like to make a single investment and have $1.6 million at the time of her retirement in 35 years. She has found a retirement fund that will earn 4% annually. How much will Sarah have to invest today? If she earned an annual return of 18%, how soon could she then retire?
Question 2 - How many years will it for $500 to grow to $1,051.82 at 10% compounded annually?
Question 3 - What is the present value of a perpetual stream of cash flows that pays $80,000 at the end of one year and grows at a rate of 7% indefinitely? The rate of interest used to discount the cash flows is 9%. What is the present value of the growing perpetuity?
Question 4- To pay for your education you have taken out $28,000 in student loans. If you make monthly payments over 13 years at 6% compounded monthly, how much are your monthly student loan payments?
Question 5 - You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:
|
Investment
|
|
End of Year
|
A
|
B
|
C
|
|
1
|
$1,000
|
$1,000
|
$5,000
|
|
2
|
2,000
|
1,000
|
5,000
|
|
3
|
3,000
|
1,000
|
(5,000)
|
|
4
|
(4,000)
|
1,000
|
(5,000)
|
|
5
|
4,000
|
3,000
|
15,000
|
What is thaw present value of each if these three investments if the appropriate discounts rate is 13%?