2. Jerry was born today. His grandmother has set up a trust fund fo...

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2. Jerry was born today. His grandmother has set up a trust fund for him with the following terms: Starting the day Jerry turns 18, he will receive $1,000 on each birthday through his 29th birthday. On his 30th birthday, Jerry will receive a lump sum of $10,000, which will be the final payment. What is the present value of Jerry’s trust fund? Assume an interest rate of 10%.

3. In class we have shown the formula for the present value of a growing perpetuity. The formula can be used to evaluate the present value of a growing annuity. The following question will get you through the calculation.
You have been offered a job at $100,000 a year. Your first salary will be paid in a year. You expect your salary to increase by 4% a year until you retire in 20 years. Given an interest rate of 6% a year, what is the present value of your salary?

5. When you purchased your summer house in Hilton Head, SC, you took out a $200,000, 30-year loan with a 7% interest (paid annually). You have just made the payment. Given the financial situation in world markets you have now decided to pay the mortgage off by repaying the outstanding balance. What is the payoff amount if:
a. There are 10 years left on the mortgage
b. There are 15 years left on the mortgage

6. Shane has just received a $5,000 inheritance from his grandmother. He invests the money in his bank’s money market account which earns 4.5% stated annual interest (APR) compounded monthly.
a. After one year, what will be the total value in Shane’s money market account?
b. Six months after investing his inheritance, Shane’s car breaks down and needs $2500 in repairs. Shane decides to withdraw the money from his inheritance account to pay for the repairs. How much money will he have at the end of the year?

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The cash flow timeline has been shown under:

Time Cash inflow
1 $0
2 $0
3 $0
4 $0
5 $0
6 $0
7 $0
8 $0
9 $0
10 $0
11 $0
12 $0
13 $0
14 $0
15 $0
16 $0
17 $0
18 $1,000
19 $1,000
20 $1,000
21 $1,000
22 $1,000
23 $1,000...

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