1. What is the future value of an ordinary annuity of $8,000 per year for 10 years if it earns 6% interest compounded annually?
2. Barbara wants to save for college, which she begins 5 years from now. She will deposit $2,500 each of the next five years, starting at the end of the year into an account that promises 4% interest compounded annually. When she withdrawals the money, how much will she have for college spending?
3. Zack's want to save for retirement by using a Roth IRA. He wants to know how much will be available in 30 years if deposits the maximum $3,000 per year, starting at the end of this year. He will invest the money in the stock market, which has an historical return of 9%. What will be the balance of the Roth IRA in 30 years?
4. Richard wants to save $6,000 per year for the next 10 years. If he can earn 10% interest compounded annually, what amount will he have if he makes his deposits at the end of each year?
5. What annual payment will lead to the future value of $40,000 if it is a 10-year ordinary annuity, earning 10 percent annual interest?
6. If the future value of an ordinary annuity is $15,000, what were the payments if the annuity was for 20 years at 4 percent interest?
7. Franklin wants to have $30,000 for a new car 4 years (48 months) from now. How much must he save each month if his annuity contract will earn 12% annual interest (1 percent per month)? Assume payments start at the end of the first month.
Present Value of an Annuity
8. What is the present value of an ordinary annuity that pays $1,000 each year for 12 years if the discount rate is 8% compounded annually?
9. What is the most a rational person should pay for the right to receive $20,000 per year for 10 years (payments start at the end of the year) if their opportunity cost is 6% compounded annually? (to the nearest dollar)
10. How much should Wilhelm, a rational investor, pay for an ordinary annuity that promises to pay him $50,000 per year over the next 20 years if his opportunity cost is 8% compounded annually? (to the nearest dollar)
11. Peter estimates that the present value of earning a college degree is $275,300. This assumes he will earn 6 percent annual interest over the 30 years he plans to work. What extra annual income is Peter estimating he will earn by going to college?
12. The present value of an ordinary annuity is $459,730. What were the annual payments that grew to that amount over 8 years if the account was earning 8 percent interest?