Question 1: Mr. Miser, who is 35 years old, has just inherited $11,000 and decides to use the windfall towards his retirement. He places the money in a bank which promises a return of 6% per year until his planned retirement at age 65. If his funds earn 6% interest compounded annually, how much will he have at retirement?
Question 2: An investment of $232 will produce $312.18 in two years. What is the annual rate of interest?
Question 3: An investment today of $3300 is worth $10,000 in 8 years. At what rate has your investment been growing (annually) over the 8 years?
Question 4: An investment costs $1,550 and pays $138 in perpetuity. If the fair interest rate is 9%, is this investment priced too high or too low?
Question 5: Using your financial calculator solve for the number of years required to double the nominal size of your investment at interest rates of 5%, 7%, 10%, and 20%.
Question 6: If you invest $100,000 today at a 12% interest rate per year over the next 15 years, what is the most you can spend in equal amounts out of the fund at the end of each year over that time.
Question 7: . Joe, a freshman in college, needs $55,000 in 4 years to buy the car of his dreams. If his investments earn 6% interest per year, how much must he invest today to have that amount at graduation?
Question 8: If he invested once a year for four years beginning one year from today until the end of the 4 years how much must he invest?
Question 9: Calculate the total dollars accumulated at the end of thirty years if you invest $1,000 per year starting today at 8% per year.
Question 10: You want to buy a new BMW for $56,850 and the finance manager at the dealership has quoted an 8.2% APR loan for 60 months to purchase the car. What will your monthly payments be? What is the effective annual interest rate on this loan?
Question 11: Sam Nelson is 30 years old, and next year his annual salary will be $30,000. Assuming Sam plans on retiring when he turns 60 and assuming no inflation and a 10% interest rate, how much will he be able to save if he starts saving $2,500 a year when he turns 40? ? (1st payment when he is 41) How does this change if he starts saving $2,500 next year? (1st payment when he is 31.)
Question 12: Sam now calculates that he will need $25,000 a year for 30 years in retirement (he expects to live until he is 90.) If he starts saving next year, (1st payment when he is 31) how much does he have to save annually to meet his objective? How much will he have to save annually if he starts saving when he is 40? (1st payment when he is 41.)
Question 13: Now redo Problem 12 assuming the nominal rate of 10%, and annual inflation of 5%. Assume Sam needs $25,000 a year in retirement in real dollars.
Question 14: Using the assumptions from problem 13 above, what amount, in nominal dollars, will Sam withdraw in his first year of retirement?
Question 15: Your summer beach vacation was great, but it ran a bit over budget. All is not lost however, because you just received an offer to transfer your now bloated credit card balance of $10,000 from your current card, which charges an APR of 19.2% (1.6% per month) to a new credit card with an APR of 9.2%. If you plan on making monthly payments of $200, how much faster willyou be able to pay off the vacation expenses with the new card?
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