Problem 1:
You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $5000.You plan to put down $1000 and borrow $4000. You will need to make annual payments of $1000 at the end of each year. Show the timeline of the loan from your prospective. How much would the timeline differ if you created it from the bank perspective?
Problem 2:
Many academic institutions offer a sabbatical policy. Every seven years a professor is given a year free of teaching and other administrative responsibilities at full pay. For a professor earning $70,000 per year who works for a total 42 years, what is the present value of the amount she will earn while on sabbatical if the interest rate is 6% (EAR)?