1. Suppose that 5 years from now you will receive $10,000 at the end of every ye
ID: 2758834 • Letter: 1
Question
1. Suppose that 5 years from now you will receive $10,000 at the end of every year for 5 years. What is the present value of this annuity if the opportunity cost rate is 5%?
2. What is the future value of $300 deposited into a mutual fund account at the end of every month for the next 50 years? Assume that your investment compounds monthly and that you earn 12% per year.
3. If you invest $1,000 today and earn $1,000,000 in 40 years, what is your time-compounded annual rate of return?
4. If you buy a house for $300,000 at 3.75% interest, what are your monthly payments for a 30 year conventional loan? If you pay an extra $300 each month, by how much can you reduce the term of your loan?
Explanation / Answer
1)
Present value = P×(1÷(1+r)^n)
P is payment
r is interest rate per period
n is number of periods
= $10,000×(1÷(1+5%)^5)
= $7,835.26
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