Don Draper has signed a contract that will pay him

$55,000

at the end of each year for the next

6

years, plus an additional

$120,000

at the end of year

6.

If

7

percent is the appropriate discount rate, what is the present value of this contract?

2. Selma and Patty Bouvier are twins and both work at the Springfield DMV. Selma and Patty Bouvier decide to save for retirement, which is 35 years away. They'll both receive an annual return of

8

percent on their investment over the next 35 years. Selma invests

$2,200

per year at the end of each year only for the first 10 years of the 35-year

periodfor

a total of

$22,000

saved. Patty doesn't start saving for 10 years and then saves

$2,200

per year at the end of each year for the remaining 25

yearsfor

a total of

$55,000

saved. How much will each of them have when they retire?