Problem 1:
Calculate the present value of a four year uneven cash flow given below, using 8% discount rate:
Year 0 Year 1 Year 2 Year 3 Year 4
0 $400 $600 $800 $900
Problem 2:
Calculate the future value of a three year uneven cash flow given below, using 11% discount rate:
Year 0 Year 1 Year 2 Year 3
0 $600 $500 $400
Problem 3:
Calculate the present value of a $450,3-year annuity at 7% interest rate.
Problem 4:
Calculate the future value of a $650,4-year annuity at 9% interest rate.
Problem 5: (Perpetuity is an annuity that goes on forever or to infinity)
Calculate the present value of a $1000 perpetuity at 8% interest rate.
Problem 6:
Mr. Jones would like to retire in 30 years. He would like to accumulate $1,500,000 at the time of retirement
to live a contented life. He would like to set aside equal amount each month to achieve his goal.
Calculate the monthly amount Mr. Jones should save if he is able to invest them at an interest rate of 9.6%.
[Annual rate] [Assume monthly compounding]
Problem 7:
Mrs. Jenny would like to retire in 25 years. She would like to accumulate $1,250,000 at the time of retirement
to live a contented life. She would like to set aside equal amount each month to achieve her goal.
Calculate the monthly amount Mrs. Jenny should save if she is able to invest them at an interest rate of 10.8%.
[Annual rate] [Assume monthly compounding]
Problem 8:
Mr. Homer has just taken out a $195,000 mortgage at an interest rate of 4.2% [Annual rate]. The mortgage calls for equal monthly payments for 15 years. Then calculate the amount of the monthly payment:
[Assume monthly compounding]
Problem 9:
Calculate the present value of a $250,4-year annuity due at 7% interest rate.
Problem 10:
The nominal interest rate on a savings account is 9.6% annually. If the bank advertises that the
interest is compounded monthly, calculate the effective annual rate (EAR):
