1.What's the future value of $2,000 after 3 years if the appropriate interest rate is 8%, compounded monthly?

2.Suppose you borrowed $25,000 at a rate of 8% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?

3. You are buying your first house for $220,000, and are paying $30,000 as a down payment. You have arranged to finance the remaining $190,000 30-year mortgage with a 7% nominal interest rate and monthly payments. What are the equal monthly payments you must make?

4.Your sister turned 30 today, and she is planning to save $3,000 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund, which she expects to provide a return of 10% per year. She plans to retire 35 years from today, when she turns 65, and she expects to live for 30 years after retirement, to age 95. Under these assumptions, how much can she spend in each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

5.A real estate investment has the following expected cash flows:
Year Cash Flows
1 $10,000
2 25,000
3 50,000
4 35,000

If the discount rate is 8%, what is the investment's present value?

Solution Preview

1)
The monthly interest rate is 8%/12 = 0.67%
There are a total of 3 years * 12 months = 36 months. Therefore, the future value is
$2,000 * (1 + 0.67%)^36 = $2,540.48

2)
This is an annuity problem. I am not sure what kind of financial calculating device you are using. Therefore, I am providing the following information so you can adjust them to your device as you see fit.
Present value: 25,000
Interest rate: 8%
Number of periods: 4
Solve for annuity payment. You should have $7,548.02

3)
Again, this is an annuity payment with
Present ...

Solution Summary

This solution shows step-by-step calculations to determine future values of a principal amount with interest, equal monthly payments, retirement savings plan, and investment's present value with a discount rate.

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