1. Suppose you borrowed $10,000 at a rate of 5% and must repay it in 3 equal installments at the end of each of the next 3 years. How much would you still owe at the end of the second year, after you have made the second payment?
2. Person A and Person B each have $250,000 in an investment account. No other contributions will be made to their investment accounts. Both have the same goal: They each want their account to reach $1.1 million, at which time each will retire. Person, A has his money invested in risk-free securities with an expected annual return of 4%. Person B, has their money invested in a stock fund with an expected annual return of 8%. How many years after Person B retires will Person A retire?
3. What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $1,250?
4. At a rate of 6.5%, what is the future value of the following cash flow stream?
Years: 0 1 2 3 4
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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%?