Finance- If you were offered an investment that will pay you $10,000 every year forever

| January 30, 2017

1. If you were offered an investment that will pay you $10,000 every year forever, and you require an 8% return on investments with the same levels of risk, how much are you willing to invest today?

2. You are offered an investment that will pay you $40,000 every year for 20 years. If you require a 12% return on investments with similar levels of risk, how much would you be willing to invest today?

3. You save $100 every month in an account that earns 2.4% annually and compounds monthly. How much will you have in your account after 15 years?

4. A loan’s quirky terms require the first payment to be made at the moment the money is lent. Payments are $50 every month, the monthly interest rate is 1%, and the loan is paid off in equal payments over 5 years. How much money was borrowed?

5. In your will, you bequeath $60,000,000 into an account that earns 8% annually. The account will fund an annual award in perpetuity that will be given to a world leader who has excellent intentions to promote peace. If you want the award amount to increase by 4% every year, what will be the first year’s award amount be?

6. You start saving $1000 at the end of this year and increase your saving by 5% every year for 20 years. Your account earns 11%. How much will you have in your account in 20 years?

7. If you did not increase your saving by 5% in the previous problem, how much less will you have in your account after 20 years than if you increased your contributions?

8. Your brother lent you $100 five years ago. You gave him an I.O.U. to pay him back with $140 today. What was the interest rate on this loan? Answer in percent and round to one hundredth of a percent.

9. You deposited $1000 in a mutual fund over the past seven years. Your account balance is $9,000. What annual rate return did you realize? Answer in percent and round to one hundredth of a percent.

10. You take out a sub-prime mortgage for $250,000, maturing in 30 years, and charging 1% monthly. What is the monthly mortgage payment? (There are 360 monthly payments.) Round your answer to the nearest penny.

11. Your goal is to save up $30,000 to use as a future down payment. If you save $4,000 every year in an account that earns 5% annually, how long will you be saving? Answer in years and round to two decimal places

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