1. A Homeowner in a sunny climate has the opportunity to install a solar water heater in his home for a cost of $2,200. After installation the solar water heater will produce a small amount of hot water every day, forever, and will require no maintenance. How much must the homeowner save on water heating cost every year if this is to be a sound investment? (The interest rate is 10% per year)

2. You are thinking of purchasing a house. The house costs $250,000
You are thinking of purchasing a house. The house costs $250,000. You have $36,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30 year mortgage that requires monthly payments and has an interest rate of 8% per year. What will your monthly payment be?

3. Your brother has offered to give you either $65,000 today or $130,000 in 12 years. IF the interest rate is 5% per year, which option is preferable?

4. A rich relative has bequeathed you a growing perpetuity
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in one year and be $4, Each year after that, you will receive a payment on the anniversary of the last payment that is 5% larger than the last payment. This pattern of payments will go on forever. If the interest rate is 9% per year, What is today’s value of the bequest?

5. Your father spent all of his adult life working in a small T-shirt making firm. His first year of sales was $118,000 and his last year of sales was $450,000. IF the firm grew at an average rate of 3.15% per year, how many years did your father sell T-shirts in his firm?

6. Imprudential Inc., has an unfunded pension liability of $675 million that must be paid in 25 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6 percent, what is the present value of this liability?

7. Assume the total cost of a college education will be $280,000 when your child enters college in 18 years. You presently have $45,000 to invest. What annual return must you earn on your investment to cover the cost of your child’s college education?

8. You are trying to save to buy a new $150,000 Ferrari
You are trying to save to buy a new $150,000 Ferrari. You have $35,000 today that can be invested at your bank. The bank pays 3.2 percent annual interest on its accounts. How long will it be before you can afford to by the car?

9. Your coin collection contains 50 1952 silver dollars
Your coin collection contains silver dollars. If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2058 assuming they appreciate at annual rate of 6.1 percent?

10. In 2011 an Action Comics No. 1, featuring the first appearance of Superman, was sold at auction for $2,161,000. The comic book was originally sold in 1938 for $.10. What was the annual increase in the value of this comic book?

11. Investment X offers to pay you $3,700 per year for nine years, whereas investment Y offers to pay you $5,500 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 6%? X = $25, Y = $23,168.00

12. Curly’s Life Insurance Co
Curly’s Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever. If the required rate of return on this investment is 6%, how much would you pay for the policy? $416,666.67

13. Travis invests $10,000 today into a retirement account
Travis invests $10,000 today into a retirement account. He expects to earn 8 percent, compounded annually, on his money for the next 26 years. After that, he wants to be more conservative, so only expects to earn 5 percent, compounded annually. How much money will he have in his account when he retires 38 years from now, assuming this is the only deposit he makes into the account? $132,827.88

14. When you were born, your parents opened an investment account in your name and deposited $500 into the account. The account has earned an average annual rate of return of 4.8 percent. Today, the account is valued at $36, How old are you? 91.75