Reference no: EM133015050

Question -

1. An investment promises to pay you $340 per year starting in one year. The cash flow from the investment is expected to increase by 3 percent per year forever. If alternative investments of similar risk earn a return of 7 percent per year, determine the maximum you would be willing to pay for the investment.

2. Alysha has decided to use $150,000 in savings to make a down payment on a house. She will live in the house for the next two years while still at university and then sell it when she graduates. The bank has offered her a mortgage rate of 4 percent compounded semi-annually on a two-year term, with an amortization period of 25 years. The house she is interested in purchasing costs $370,000.

3. If two friends rent rooms from Alysha and pay her $400 each for rent at the end of each month, how much additional money does she need to meet her monthly mortgage payment?

In two years, Alysha wants to sell the house for a high enough price to cover the remaining principal amount on the mortgage, as well as recoup her down payment. What is the minimum sale price she should accept?

4. William has a goal of amassing $600,000 by the time he retires. However, there always seems to be a reason not to save money, so he put it off for many years. Finally, with just 12 years before his retirement, he begins to save. Fortunately, William's executive-level job allows him to save $24,000 per year.

If these savings earn 8 percent per year, will William achieve his $600,000 goal at the desired time?