ASSUME ALL ANNUITIES ARE “ORDINARY ANNUITIES” UNLESS I SPECIFICALLY STATE THAT IT IS AN “ANNUITY DUE!”
1. - How much must you invest at 8% interest in order to see your investment grow to $8,000 in 10 years? Approximately
2a. - To save for her newborn son's college education, Leah will invest $1,000 at the end of each year for 18 years. The interest rate is 12 percent. What is the approximate future value?
2b. - Referring to the preceding problem (Facts repeated here: To save for her newborn son's college education, Leah will invest $1,000 at the end of each year for the next 18 years. The interest rate is 12 percent.), if instead she were to make her first investment immediately, thereby making this an “Annuity Due,” what would the approximate future value be (i=12%, n=18)?
3.- Sharon will receive $1 million in 50 years. The discount rate is 13%. As an alternative, she can receive $1,000 today. Which should she choose based purely on the math, all other facts equal?