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- Annuity Due
3. Determine the appropriate interest rate (r)
4. Plug all variables into the correct formula(s) Problem 9
Your sleazy cousin is offering you an “investment opportunity” that promises to pays $15,000
in 5 years if you put up $12,000 today. He assures you that the rate of return on this
“opportunity” is well above the market interest rate of 4.75%.
“You make $3,000 profit off of a $12,000 investment” he says. “That’s a 25% return!”
Is your cousin right? Problem 10
Using your cunning knowledge of the time value of money, you try and trick your younger
brother when settling your $100 debt. Instead of paying him the money upfront, you instead
negotiate to pay $5 every year from now until the day you die. Interest rates are stable at 6%.
How much money do you save from this deal? Problem 11
Amidst concerns over his job security, Ron Burgundy decides to put some money away for
safe-keeping. He invests $40,000 in government bonds which guarantee 2% g...
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- Fall '08