In CLASS Practice

Solutions will be posted tomorrow, Feb 29, 2024 in resources under Chapter 3.

TO BE COMPLETED ON YOUR OWN.

Solve the following questions:

1. If the PV of $139 is $125 after one year, what is the discount factor as a percentage?

2. Ellen deposited the following amounts into a bank account earning 15% per year, $432 in year 1,
$137 in year 2, and $797 in year 3. What is future value at the end of three years?

3. The cost of a new automobile is $10,000 today. If the interest rate is 5%, how much would you
have to set aside now to provide this sum in five years?

4. You have to pay $12,000 a year in school fees at the end of each of the next six years. If the
interest rate is 8%, how much do you need to set aside today to cover these bills?

5. Mike Polanski is 30 years of age and his salary next year will be $40,000. Mike forecasts that his
salary will increase at a steady rate of 5% per annum until his retirement at age 60.
a. If the discount rate is 8%, what is the present value of these future salary payments?
b. If Mike saves 5% of his salary each year and invests these savings at an interest rate of
8%, how much will he have saved by age 60?
c. If Mike plans to spend these savings in even amounts over the subsequent 20 years,
how much can he spend each year?