Discussion
1) You're trying to save to buy a new $140,000 Ferrari. You have $39,000 today that can be invested at your bank. The bank pays 4.0 percent annual interest on its accounts. How long will it be before you have enough to buy the car?
2) In January 2007, the average price of an asset was $27,358. 7 years earlier, the average price was $20,808. What was the annual increase in selling price?
3) Imprudential, Inc., has an unfunded pension liability of $500 million that must be paid in 21 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 7.5 percent, what is the present value of this liability?
4) You are scheduled to receive $27,000 in two years. When you receive it, you will invest it for 7 more years at 7.5 percent per year. How much will you have in 9 years?