Suppose that you have a choice between receiving $10,000 now and receiving $1000 per month for the next 12 months. Assuming that you can invest at a 12% annual percentage rate (APR) with monthly compounding, what is

• the break-even annual rate of return at which you are indifferent between receiving $10,000 now and receiving $1000 per month for 12 months?
• the break-even number of monthly payments at which you are indifferent between receiving $10,000 now and receiving $1000 per month, given an APR of 12% with monthly compounding?
• the break-even dollar amount of monthly payments, given an APR of 12% with monthly compounding and 12 months of payments?

You are saving $200 per month at 6% annual percentage return (APR) with monthly compounding. How many years will it take for your savings to accumulate to $10,000?

How do you compute with a financial calculator?

You have purchased a three-year inflation-indexed investment. This investment will pay you $X every six months, with each payment adjusted upward for inflation. Let's say that the proposed first payment is $300 (before inflation adjustment), the average forecasted inflation rate will be 0.5% every six months for the next three years, and your required annual rate of return is 6% (compounded semi-annually). What is the present value of this inflation-indexed investment?

You have purchased an investment that promises to pay you a constant $300 every six months, indefinitely. Your required annual rate of return is 6%, compounded semi-annually; assume that this rate will be the same indefinitely. What is the present value of this investment three years from now? (Hint: You cannot use a financial calculator to solve this problem.)