If money is worth more than 0% to you, would you rather receive $10,000/year for 5 years or receive $5,000/year for 10 years? What is your preference if you must pay these amounts, rather than receive them?

If the rate of interest (r) is 9%, then you should be indifferent about receiving $9,500 in one year or ________.

Suppose that your parents are willing to lend you $20,000 for part of the cost of your college education and living expenses. They want you to repay them the $20,000, without any interest, in a lump sum 15 years after you graduate, when they plan to retire and move. Meanwhile, you will be busy repaying federally guaranteed loans for the first 10 years after graduation. But you realize that you won’t be able to repay the lump sum without saving up. So you decide that you will put aside money in an interest-bearing account every month for the five years before the payment is due. You feel comfortable with putting aside $275 a month (the amount of the payment on your college loans, which will be paid off after 10 years). How high an annual nominal interest rate on savings do you need to accumulate the $20,000 in 60 months, if interest is compounded monthly? Enter into a spreadsheet the values d 5 275, r 5 0.05 (annual rate), and n 5 60, and the savings formula with r replaced by r/12 (the…

4) Retirement: You have just retired from your company after working for twenty years. Your company provides a retirement package and gives you the option of i) receiving $250,000 today, or ii) receiving $350,000 in five years (T=5). What option would you select if the interest rate is R=5%? What option would you select if the interest rate is R=10%? What interest rate would make the present value of both options equal? (Hint: use Excel’s Data-What If - Goal Seek to solve for the interest rate T).