1) You deposit $375 in a savings account that pays 4% interest annually. How long will you have to leave the money in the account for it to double?
2) A fifteen year bond has annual payments that start at $1,000 one year from now and increase by 3.5% each year. If the discount rate is 5%, what is the present value of the bond?
3) After graduating, you have a student loan that must be paid off. Your lender gives you two choices: (a) pay a fixed amount $2000 each year (starting a year from now) for 8 years, or (b) pay escalating amounts that start at $1500 (a year from now) and increase by 1% each year for 11 years. Assuming a discount rate of 4.5%, which has a lower present value?
4) An investment costs $900 up front and $450 five years from now. It yields returns of $325 every other year (in years 2, 4, 6, etc) for the next 15 years. In addition, in year 15, it will pay off an additional amount of $600. If the discount rate is 6%, is this a worthwhile investment?