1. Jessie has just retired and wants to use her 401k to purchase an annuity that will pay $80,000 a year for 30 years. If the first $80,000 payment is received today, and if the annual discount rate is 8%, how much will the annuity cost her?
2. Grace would like to purchase a house. The owner’s asking price is $120,000 and her mortgage rate is 5% annually with monthly compounding. What will her monthly payment be on a 30-year mortgage based on these numbers?
3. Jewel Inc. will pay a $1 dividend for the next 4 quarters. Afterwards, the dividend will grow at a constant 1% per quarter. How much are you willing to pay for the stock if the required return is 16% annually with quarterly compounding?