Reference no: EM133131496

Question 1 - Assume that your parents wanted to have $150,000 saved for university by your 18th birthday and they started saving on your first birthday. They saved the same amount each year on your birthday and earned 8% per year on their investments.

1. How much would they have to save each year to reach their goal?

2. If they think you will take four years instead of three to graduate and decide to have $200,000 saved just in case, how much more would they have to save each year to reach their new goal?

Question 2 - A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1000. Each year after that, you will receive a payment on the anniversary of the last payment that is 8% larger than the last payment. This pattern of payments will go on forever. If the interest rate is 12% per year:

a. What is today's value of the bequest?

b. What is the value of the bequest immediately after the first payment is made?

Question 3 - You are thinking of purchasing a house. The house costs $400,000. You have $50,000 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 annual payments and has an interest rate of 7% per year. What will your annual payment be if you sign up for this mortgage?