You expect to receive $100 at the end of the year 6 from now. the annual interest rate 5%. 

A) How much is the $100 worth at the end of year 2?

B) How much is the $100 worth at the end of year 20?

C) Instead of receiving the $100 in year 6, you choose to receive an annuity over 10 years(from year 1 to year 10). 

What is the amount of the annuity that will make you indifferent between the two choices?

2) After graduation, you are expected to earn the same annual salary of $40,000 for 5 years.

Afterwards, your salary will grow at an annual rate 3% forever (assuming you have a very long lifespan). In year 6, for example, your salary will be $40,000 x (1+3%)= $41,200, and in year 7 your salary =$40,000 x (1+3%)²=$42,436, etc.

A) What is the present value of all salaries you will earn in the first 5 years?

Assume the interest rate is 5% for both questions A and B. 

B) What is the present value of all the salaries you will earn after the first 5 years?

Answer rating: 100% (QA)

A To calculate the future value of 100 at the end of year 2 we can use the compound interest formula Future Value Present Value 1 Interest RateNumber of Periods In this case the present value is 100 t... View the full answer