# Problem 1 You just inherited some money, and a broker offers to sell you an annuity that pays \$5,000 at the end of each year for 20 years. You could earn 5% on your money in other investments with eq

Problem 1

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Problem 1 You just inherited some money, and a broker offers to sell you an annuity that pays \$5,000 at the end of each year for 20 years. You could earn 5% on your money in other investments with eq
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You just inherited some money, and a broker offers to sell you an annuity that pays \$5,000 at the end of each year for 20 years.  You could earn 5% on your money in other investments with equal risk.  What is the most you should pay for the annuity?

Problem 2

a)      Compute the future value of a 9%, 5-year ordinary annuity that pays \$600 each year.

b)      Assume that payments are made at the beginning of the year. Find the future value using the given information from part (a)

Problem 3

You want to quit your job and go back to school for a law degree 4 years from now, and you plan to save \$3,500 per year, beginning immediately.  You will make 4 deposits in an account that pays 5.7% interest.  Under these assumptions, how much will you have 4 years from today?

Problem 4

The APY for a savings account with a stated APR of 5% compounded daily is closest to

Problem 5

What’s the present value of a 4-year ordinary annuity of \$2,250 per year plus an additional \$3,000 at the end of Year 4 if the interest rate is 5%?

Problem 6

Ally wishes to leave a provision in her will that \$7000 will be paid annually in perpetuity to a local charity. How much must she provide in her will for this perpetuity if the interest rate is 6%?

Problem 7

A bank offers a loan that will requires you to pay 7% interest compounded monthly. Which of the following is closest to the APY charged by the bank?

Problem 8

What is the present value of the following cash flow stream at a rate of 12.0%?

Years:                         0                      1                      2                      3                      4

|                       |                       |                       |                       |

CFs:                             \$0                    \$1,500             \$3,000             \$4,500             \$6,000

Problem 9

A bank offers a home buyer a 20-year loan at 8% per year. If the home buyer borrows \$130,000 from the bank, how much must be repaid every year?

Problem 10

Matthew wants to take out a loan to buy a car. He calculates that he can make repayments of \$5000 per year. If he can get a four-year loan with an interest rate of 7.9%, what is the maximum price he can pay for the car?

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