# Exercise 2 Answers - \$500,000 or receiving \$100,000 now and...

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ECON 423 Class Exercise 2 Present Value and Future Value 1. You have managed to get a job offer that pays \$50,000 with annual increments of 5%. What will your salary be at the beginning of the third year (in 2 years)? Salary = \$50000*(1+0.05)^2 = \$55,125 2. If going to UNC this year costs \$15,000 (Tuition, Room and Board) for an instate student, currently, and if college costs rise at 5% per annum, what will be the annual cost in 20 years? Fees in 20 years = \$15000*(1+0.05)^20 = \$39799.5 3. You have won a lottery which gives you the choice of receiving a one-time payment of
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Unformatted text preview: \$500,000 or receiving \$100,000 now and \$90,000 per year for 5 years. The interest rate that your bank pays on savings deposits is 5%. Which method of payment will you accept and why? PV = \$500,000 PV = \$100000+ (90000/0.05)*(1-1.05^(-5)) = \$489,652 4. You have graduated from college and you want to save up money to make a down payment of \$40,000 at the end of 3 years to buy a new house. If the annual interest rate is 5%, what should your annual saving be? 40000 = (C/0.05)*(1.05^3)-1) C= \$12688.34...
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## This note was uploaded on 02/13/2012 for the course ECON 423 taught by Professor Vd during the Spring '08 term at UNC.

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