Question 1: Sarah Wiggum would like to make a single investment and have $1.6 million at the time of her retirement in 35 years. She has found a retirement fund that will earn 4% annually. How much will Sarah have to invest today? If she earned an annual return of 18%, how soon could she then retire?
Question 2: How many years will it take for $500 to grow to $1,051.82 at 10% compounded annually?
Question 3: What is the present value of a perpetual stream of cash flows that pays $80,000 at the end of one year and grows at a rate of 7% indefinitely? The rate of interest used to discount the cash flows is 9%. What is the present value of the growing perpetuity?
Question 4: To pay for your education you have taken out $28,000 in student loans. If you make monthly payments over 13 years at 6% compounded monthly, how much are your monthly student loan payments?
Question 5: You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:
| Investment |
End of Year
|
A
|
B
|
C
|
| 1 |
$1,000 |
$1,000 |
$ 5,000 |
| 2 |
2,000 |
1,000 |
5,000 |
| 3 |
3,000 |
1,000 |
-5,000 |
| 4 |
-4,000 |
1,000 |
-5,000 |
| 5 |
4,000 |
3,000 |
15,000 |
What is the present value of each if these three investments if the appropriate discount rate is 13%?