Homework 1 - Fall 2008 Engineering 120 Industrial...

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Unformatted text preview: Fall 2008 Engineering 120 Industrial Engineering & Operations Research August 31, 2008 Page 1 of 2 Homework #1 Due: September 5, Friday at the beginning of the discussion section. 1. A 10-year annuity pays $900 per year, with payments made at the end of each year. The first $900 will be paid 1 year from now. If the interest rate is 8 percent, what is the present value of the annuity? What if the first $900 is paid 3 years from now? What if the first $900 is paid now? ( Note: A 10-year annuity means that the total number of payments is 10. ) 2. You are saving for the college education of your two children. They are two years apart in age; one will begin college in l5 years, the other will begin in l7 years. You estimate your children’s college expenses to be $21,000 per year per child. The annual interest rate is 15 percent. How much money must you deposit in an account each year to fund your children’s education? You will begin payments one year from today. You will make your last deposit when your oldest child enters college. ( Hint: Draw a timeline for tuition payments and another for deposits. The PV of these two cash flow streams should be equal to each other).two cash flow streams should be equal to each other)....
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This note was uploaded on 06/15/2009 for the course ENGIN 120 taught by Professor Ilan during the Fall '08 term at Berkeley.

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Homework 1 - Fall 2008 Engineering 120 Industrial...

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