Use the appropriate table to compute the following:

1. You have always dreamed of taking a safari in Africa. What lump sum do you have to invest today to have the €16,000 needed for the trip in 3 years? Assume that you can invest the money at 

(a). 4 per cent, compounded annually.

(b). 10 per cent, compounded annually.

(c). 16 per cent, compounded annually.

2. You are considering partial retirement. To do so you need to use part of your savings to supplement your income for the next 5 years. Suppose you need an extra €20,000 per year. What lump sum do you have to invest now to supplement your income for 5 years? Assume that your minimum desired rate of return is

(a). 4 per cent, compounded annually.

(b). 10 per cent, compounded annually.

(c). 16 per cent, compounded annually.

3. You just won a lump sum of €1,000,000 in a state lottery. You have decided to invest the winnings and withdraw an equal amount each year for 10 years. How much can you withdraw each year and have a zero balance left at the end of 10 years if you invest at

(a). 5 per cent, compounded annually?

(b). 10 per cent, compounded annually?

4. A tennis player is offered the choice of two 4-year salary contracts, contract X for €1.4 million and contract Y for €1.3 million:

Which contract has the higher PV at 14 per cent compounded annually? Show computations to support your answer.

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End of year 1 End of year 2 End of year 3 End of year 4 Total Contract X € 200,000 300,000 400,000 500,000 €1,400,000 Contract Y € 450,000 350,000 300,000 200,000 €1,300,000