1. Why a dollar today is worth more a dollar tomorrow? How does it relate to the principle of the value of money in time? Give an example.
2. Your grandmother just died and left you $47,500 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account??
3. Suppose the U.S. Treasury offers to sell you a bond for $3,000. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $4,000. What interest rate would you earn if you bought this bond at the offer price??