Question 1 $100 to be received at the end of 3 years is worth how much today, assuming a discount rate of
 (i) (ii) (iii

) 10 per cent
 100 per cent 0 per cent?

Question 2 At the end of 5 years, how much is an initial $500 deposit plus annual $100 payments worth, assuming an annual interest rate of (i) (ii) (iii) 10 per cent 5 per cent 0 per cent?

Question 3 What is the present value of $500 to be received at the end of each of the next 3 years, assuming a discount rate of (i) (ii) 4 per cent 25 per cent?

Question 4 If Miss Smith is offered the choice of: (a) $628. or (c) $1007. Required: a) If he starts making these deposits on his 36th birthday and continues to make deposits until he is 65 (the last deposit will be on his 65th birthday). he has decided to make one lump-sum payment on his 36th birthday to cover his retirement needs. what amount must he deposit annually to be able to make the desired withdrawals on retirement? b) Suppose your friend has just inherited a large sum of money. which offers 8 per cent interest per year. What amount would he have to deposit? . Rather than making equal payments.06 now. the first withdrawal will be on his 66th birthday. annual payments on each birthday in a new savings account he will establish for his retirement fund. He wants to be able to withdraw $10. or (b) $50 per quarter for four years at 12% per annum compounded quarterly.000 from his savings account on each birthday for 10 years following his retirement. Your friend intends to invest his money in the local savings bank.85 at the end of four years. He wants to make equal. Which alternative should you recommend that she accept? Question 5 Your friend is celebrating his 35th birthday today and wants to start saving for his anticipated retirement at age 65.

If the relevant interest rate is 6 percent for the first 6 years and 7 per cent for all subsequent years. the parent) makes the following six payments to the insurance company: 1st birthday 2nd birthday 3rd birthday $730 4th birthday $855 $730 5th birthday $855 $730 6th birthday $855 After the child’s 6th birthday. When the child reaches age 65. is the policy worth buying? . no more payments are made. Typically. he or she receives $143. the policy is bought by a parent or grandparent for a child at the child’s birth. The details of the policy are as follows: The purchaser (say.723.Question 6 A well-known insurance company offers a policy known as the ‘estate creator six pay’.

Faustus. is considering an offer from Mephistopheles calling for 20 payments of $10. a naive business student. Faustus wants to know the present value of the series of payments. the payment 17 years from today will be skipped.000 . Owing to an unexpected strike at the Hades Mint. No other gap in yearly payments will be allowed.
Discounting at 10%.000.a $15.000 16 to 20 $20. Calculate an equivalent annual income for 20 years on the following income stream received over 30 years if the interest rate is 10% per annum compounded annually.000 21 to 30 $25. however. $20. Question 8. The first payment will be 15 years from today. Year 1 to 15 Income stream p.000 will be paid 18 years from today to make up for the skipped year.Question 7 John H.

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