10 October, 2018

Assignment # 2

Assignment is to be done on individual basis. Submission date of the Assignment is 17 October, 2018.

Solve following questions using Cash Flow Diagrams and Tables as appropriate.

Q 1. An investor has an option to purchase a tract of land that will be worth $10,000/- in six years. If
the value of the land increases at 8% each year, how much should the investor be willing to pay now for
this property?

Q 2. A firm borrows $1,000/- for eight years. How much must it repay in a lump sump at the end of
the eighth year? Use an interest rate of 10% per year.

Q 3. How much should be deposited in a fund now to provide for eight end of year withdrawals of
$187.5 each? Use an interest rate of 10% per year.

Q 4. The average price of gasoline was $2.31 in 2015. Average annual rate of increase in gasoline price
is 6.62%. How long will it be before we are paying $5 per gallon? Use the equation given below to solve
the problem.
N
F = P (1 + i)
Q 5. In 2018, the average debt for college student loans is $32,300/-. This amounts to a $300 monthly
payment for a standard loan repayment plan over 10 years. What monthly interest rate is being charged
on this typical student loan?