If you are 25 years old, and want to retire at age 65 with $1,000,000.00, how much do you need to save each month? In this example, your savings account pays 8% interest, compounded monthly.
1. A paper company invests $4m to clear a tract of land and plant some young pine trees. The trees will mature in 10 years, at which time the forest will have a market value of $8m. What is the expected rate of return for the paper company's investment?
2. In 1960, your grandmother put $1000 into a special trust to be paid to a future grandchild (you) 60 years later, in the year 2020. How much will this trust be worth in the year 2020 if it has been earning 8%?
3. You are told that if you invest $11,000 per year for 23 years (all payments made at the end of each year) you will have accumulated $366,000 at the end of the period. What annual rate of return is the investment offering?
4. Two people recently bought a house. They financed the house with a $325,000, 30-year mortgage with a nominal interest rate of 4 percent. Mortgage payments are made at the end of each month. What's the payment?
5. You have been hired as a financial advisor to Steph Curry. He has received two offers for playing professional basketball and wants to select the best offer, based on considerations of money only. Offer A is a offer for $10m a year for 3 years. Offer B is a $80m offer of $14m a year for four years. What is your advice? (Hint: compare the present value of each contract by assuming a range of interest rate, say 8% - 14%)