1) You deposit $800 into a savings account that pays 2.5% compounded annually. How much will you have in the account if you leave the money there for 6 years?
2) You would like to have $30,000 in an account 10 years from now. You find an investment that would pay a 9% annual rate of return. How much would you have to invest to meet your goal?
3) An investment would cost $7,000 upfront, and pay you $10,000 five years from now. If you could earn 6% in a savings account, is this a good investment?
4) You deposit $1,000 in a savings account that pays 5% interest annually. How long will you have to leave the money in the account for it to triple?
5) You have $10,000 in savings, and in five years would like to buy a used car that would cost $15,000. What is the minimum interest rate you would need to earn on your $10,000 to succeed in your goal?
6) You buy a house, and take out a mortgage for $175,000 at a rate of 3.625% with equal annual payments over the next 30 years. What will your payments be?
7) You want to retire 40 years from now, and have $3 million in your retirement account at that time. You will make equal payments each year to the account. If you can earn a 5% annual return on your account, how much should you set aside each year?
8) A ten-year bond has annual payments that start at $1000 one year from now and increase by 3.5% each year. If the discount rate is 4.25%, what is the present value of the bond?
9) After graduating from IU, you have a student loan that must be paid off. Your lender gives you two choices: (a) pay a fixed amount of $2500 each year (starting a year from now) for 10 years, or (b) pay escalating amounts that start $1500 (a year from now) and increase by 6% each year for 12 years. Assuming a discount rate of 8%, which has a lower present value?
10) An investment costs $2000 up front and $2000 five years from now. It yields returns of $400 every fourth year (in years 4, 8, 12, etc) for the next 20 years. In addition, in year 20, it will pay off an additional amount of $2500. If the discount rate is 1.5%, is this a worthwhile investment?