1. Assume the inflation rate in Canada to be 5 percent per year for the indefinite future. (a) How much would a Canadian dollar, at the end of 10 years, be worth in terms of today's dollar? [$0.6139]
(b) How much at the end of 30 years? [$0.2314]
(c) At the end of 60 years? [$0.0535]
2. Natasha plans to deposit $4,000 per year in her account for each of the next 4 years. Thereafter, she expects to deposit $1,500 per year for another 4 years. All deposits are made at year-end. Interest rates are expected to be 8 percent for the next 2 years, and 11 percent thereafter. Interest is compounded annually. (a) What will Natasha's bank balance be at the end of year 8? [$35,438.96]
(b)How much would Natasha have to deposit as a lump sum today in order to accumulate the same bank balance at the end of year 8? [$16,244.10]
3.The Spector Corporation buys a machine for $20,000 and expects revenue of $4,770.42 per year for the next ten years. What is the expected rate of return on the machine? [20%]
4. What interest rate, compounded quarterly would you have to earn in order for it to take you twelve years to save up $200,000 by depositing $8000 in an investment at the end of each year? [the effective rate = 12.55%, the rate compounded quarterly = 12%]
