Review Exercises

1. Four years from now, an annuity needs to pay out $1,000 at the end of every quarter for three years. Using an interest rate of 5% quarterly throughout, what amount of money must be invested today to fund the investment? (Answer: $9,082.22)

2. Marnie wants to save up $250,000 to pay cash for a home purchase 15 years from now. A lump sum of $20,000 is invested at 6.25% compounded monthly for 18 years. It then pays out $2,500 at the end of every month while earning 5.05% compounded monthly. How many payments can the annuity sustain? (Answer: 25.989638 round up to 26 payments)