A) You are offered two possible investments by a broker. Investment A can be purchased for $200,000 and will pay you in return $3,000 per year for 20 years (starting a year from now). The broker argues that investment B is better since "you get a smaller yearly payment, but you will receive payments for 10 more years". You want to earn the highest overall return on your initial investment, so... which one should you choose? A the first one, B the second one, C you are totally indifferent between the two, they provide the same return, D you need more information to make this choice. Please provide calculations.
B) Your firm has received $100,000 loan from a bank. The annual payments are: $12,590.19; if the yearly interest rate is 7% how many loan payments must your firm make?
C) I want to retire in 20 years, and I want to have an annuity of $100,000 a year for 10 years after retirement. I want to receive the first annuity payment at the end of the 20th year. How much do I need to deposit today in an investment account providing an 8% interest rate in order to afford this retirement annuity?
D) Today you have taken the 30 year mortgage of $300,000 with an interest rate of 9% and monthly payments of $2,413.867. How much will your outstanding balance be after 10 years of payments? (hint: this is the same as asking what will at that point be the present value of the remaining payments).