1. Your parents are planning to retire in 18 years.

They currently have 250,000, and they would like

to have 1,000,000 when they retire. What annual rate of interest would they have to earn on their
250,000 in order to reach their goal, assuming they save no more money?
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6.

What is the future value of a 5-year ordinary annuity that promises to pay you 300 each year?
The rate of interest is 7 percent.
What is the future value of a 5-year annuity due that promises to pay out 300 each year? Assume
that all payments are reinvested at 7% a year, until year 5.
A company invests 4 million to clear a tract of land and to set out some young pine trees. The
trees will mature in 10 years, at which time the company plans to sell the forest at an expected
price of 8 million. What is company's expected rate of return?
Rachel wants a refrigerator that costs 12000. She has arranged to borrow the total purchase price
of refrigerator from a finance company at a simple interest rate equal to 12 percent. The loan
requires quarterly payments for a period of three years. If the first payment is due three months
after purchasing the refrigerator, what will be the amount of her quarterly payments on the loan?
You are branch manager of town center NatWest Bank, Manchester. A borrower approaches you
for a term loan of 500,000. You agreed to give loan to be fully amortized in a period of 5 year at
10 percent, annual payment. What will be the size of each installment? What fraction of the
payment made at the end of second year represents repayment of interest?

7. It is now January 1, 2007. You plan to make 5 deposits of 100 each, on every 6 months, with the
first payment being made today. If the bank pays a nominal interest rate of 12 percent, but uses
semiannual compounding, how much will be in your account after 10 years?
8. Ten years from today you must make a payment of 1,432.02. To prepare for this payment, you
will make 5 equal deposits, beginning today and for the next 4 quarters, in a bank that pays a
nominal interest rate of 12 percent, quarterly compounding. How large must each of the 5
payments be?
9. Jason has inherited 25,000 and wishes to purchase an annuity that will provide him with a steady
income over the next 12 years. He has heard that the local savings and loan association is currently
paying 6 percent compound interest on an annual basis. If he were to deposit his funds, what yearend equal pound amount (to the nearest pound) would he be able to withdraw annually such that
he would have a zero balance after his last withdrawal 12 years from now?
10. National Lottery has offered you the choice of the following alternative payments.
Alternative 1: 10,000 one year from now
Alternative 2: 20,000 five years from now.
a. Which should you choose if the discount rate is 0 percent? 20 percent?
b. What rate makes the options equally attractive?