1. Marcus has won the grand prize in a lottery and must choose between the following three options:
a. Receive a lump sum payment of $9,000,000
b. Receive annual end of the year payments of $1,000,000 for the next 12 years
c. Receive annual end of the year payments of $ 1,500,000 for the next 8 years
Which option should Marcus choose based on an annual investment rate of 8%?
2. How much money does Kristi need to have in her retirement saving account today if she wishes to withdraw $25,000 per year for 30 years? She expects to earn an average rate of 8%.
3. What is the future value of 4,900 invested for 8 yrs at 7 percent compounded?
4. In 2005, soccer player David Beckham signed a contract reported to be worth $51 million. the contract called for $2 million immediately and $10 million in 2006. The remaining $39 million was to be paid as $9 million in 2007, $7 million in 2008, $6 milion in 2009, $ 5 million in 2010, $4 million in 2011 and in 2012, $2 million in 2013, and $1 million in 2014 and 2015. Assuming all the payments, except the first $2 million are paid at the end of each year and the discount rate is 9%, what kind of deal did the soccer player snag?
5. What is the present value of the following set of cash flows at a 10% discount rate:
Year 1 2 3 4
Cash flow $600 -$600 $600 -$600
6. What is the future value of the set of cash flows (from the previous problem) 4 years from now? Assume an interest rate of 10%.
7. Starting today, George is going to contribute $300 on the first of each month to his retirement account. his employer will contribute an additional 50% of the amount George contributes. If both George and his employer continue to do this and he can earn a monthly rate of .68%, how much will George have in his retirement account 35 years from now?
8. James Smith has a 10 year ordinary annuity that pays $1500 every 6 months and has an annual percentage rate (APR) of 7.5%.
a. Calculate the future value of this ordinary annuity.
b. Assuming this was an annuity due, calculate the future value of this annuity.
9. You have contacted a number of car dealerships to determine the best interest rate on a new automobile loan. a Ford dealership has quouted you a 5 year, 10% loan in the amount of $35,000 that will require monthly payments.
a. What is the monthly loan payment?
b. What will be the loan's effective annual interest rate (EAR)?