FIN 320

FIN 320

Homework # 2

  1. What is the present value of the following annuities:
    1. $400 per year for 10 years at 10%
    1. $500 per year for 5 years at 5%
    1. Rework a. and b. assuming they are annuities due.
  2. Suppose you are 25 years old.  You hope to retire in 35 years (at age 60) and want to have enough money for to live a comfortable retirement for 30 more years (to age 90).  You think you will need $50,000 per year in retirement.  You also think you can earn a 7% return on your investments.
    1. How much money will you need to have saved by the start of your retirement (at age 60)?
    1. How much money will you need to save each year between now and then to reach that goal?

Assume in this question that all cashflows take place at the end of the year.  (This means the first deposit into your savings account will take place at age 26 and the first withdrawal will take place at age 61.) 

  • What is the Effective Annual Rate (EAR) of the following quoted rates?
    • 9% compounded monthly
    • 17.9% compounded daily
  • Create the first three lines of an amortization table for a 3-year, $10,000 loan if the interest rate on the loan is 9%.  (Payments on the loan are made monthly.)
 
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