Part One: What discount rate would make you indifferent between receiving $3,438.00 per year forever and $5,703.00 per year for 28.00 years?
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Part One:

  1. What discount rate would make you indifferent between receiving $3,438.00 per year forever

and $5,703.00 per year for 28.00 years? Assume the first payment of both cash flow streams occurs in one year.

  • Today is Derek's 25th birthday. Derek has been advised that he needs to have $3,486,473.00 in his retirement account the day he turns 65. He estimates his retirement account will pay 4.00% interest. Assume he chooses not to deposit anything today. Rather he chooses to make annual deposits into the retirement account starting on his 26.00th birthday and ending on his 65th birthday. How much must those deposits be?
  • Derek can deposit $11,000 on each birthday beginning with his 26th and ending with his 65th. What will the rate on the retirement account need to be for him to have $3,000,000 in it when he retires on his 65th birthday?
  • Derek can deposit $11,945.00 on each birthday beginning with his 30.00th and ending with his 68.00th. What will the rate on the retirement account need to be for him to have $3,490,754.00 in it when he retires?
  • If Derek plans to deposit $11,489.00 into his retirement account on each birthday beginning with his 26th and the account earns 11.00%, how long will it take him to accumulate $3,205,276.00?
  • Assume the real rate of return is 1.77% and the inflation rate is 7.06%. Find the nominal rate of return using the exact formula.

  • Part 2:


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