Problem 1: In fifteen years you need $1,000,000 to move to Fiji. Ten years from now you can invest in a five year investment that pays 12% interest compounded quarterly. Five years from now you can invest in a five year investment that pays 10.5% compounded semiannually. If you are able to earn 8.25% interest compounded monthly for the next five years, how much money do you need to invest each month during that time (the next five years) to meet your future needs? (After completing this problem, take your solution and work it "forward" through the three different investments to see if you end up with $1,000,000).
Problem 2: Explain the concept of time value of money. What are the variables involved, how do they relate, and why is the concept important?
Problem 3: How much would you pay today for an annuity that pays you $1,000 at the end of year 1, $2,000 at the end of year 2, $3000 at the end of year 3, $4,000 at the end of year 4, and $5,000 at the end of year 5? Use annual compounding. Money is worth 12% to you.
Problem 4: What is the monthly payment on a $150,000, 30-year mortgage at a 6.5% interest rate?