Name: ___________________________________

NetID: _______________________

HADM 2250, Prof. Q. Ma

Homework assignment #1

1.

Assume the total cost of a college education will be $280,000 when your child enters college in 18 years.
You presently have $50,000 to invest. What annual rate of interest must you earn on your investment to
cover the cost of your childs college education?

2.

Youre trying to save to buy a new $170,000 Ferrari. You have $40,000 today that can be invested at
your bank. The bank pays 6.2% annual interest on its accounts. How long will it be before you have
enough to buy the car?

3.

You have just received notification that you have won the $1 million first price in the Centennial Lottery.
However, the price will be awarded on your 100th birthday, 80 years from now. What is the present value
of your windfall if the appropriate discount rate is 9%?

4.

In 1895, the first U.S. Open Gold Championship was held. The winners prize money was $150. In 2006,
the winners check was $1,170,000. What was the annual percentage increase in the winners check over
this period? If the winners prize increases at the same rate, what will it be in 2040?

Prof. Q. Ma, HADM 2250

1/2

Name: ___________________________________

NetID: _______________________

5.

Seaborn Co. has identified an investment project with the following cash flows. If the discount rate is 10
percent, what is the present value of these cash flows? What is the present value at 24 percent?
Year
Cash Flow
1
$1,100
2
720
3
940
4
1160

6.

An investment offers $4,600 per year for 15 years, with the first payment occurring one year from now.
If the required return is 8 percent, what is the value of the investment? What would the value be if the
payments occurred for 40 years? For 75 years? Forever?

7.

Your company will generate $65,000 in annual revenue each year for the next eight years from a new
information database. If the appropriate interest rate is 8.5 percent, what is the present value of the
savings?

Prof. Q. Ma, HADM 2250

2/2