Economics Calculations

1.   Consider the following investment opportunity.

Initial cost                                                                                                         $850,000
Annual cash inflows                                                                                       $75,000
Expected life                                                                                                    20 years
What is the rate of return on this investment?  Assuming the investor wants to earn at least 12 percent, is this investment an attractive one?

5. A ski chalet at Peak n’ Peak now costs $250,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Chris and Julie retire from successful investment banking careers.
   1. What is the expected cost of the chalet if its price increases at the rate of inflation over the next ten years?
   2. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 11 percent in order to buy the ski chalet upon retirement?

1.   You purchase a new pickup truck as a graduation present.  You finance the total purchase

price of $55,000 under a 5 year, 1.9%, loan (with monthly payments).  What is the amount of your monthly payment?

1. You start saving for your retirement at age 22.  You plan to invest $3,000 per year month for 40 years with your first investment occurring at the end of the current year.

1. How large is your retirement fund if you invest at 6%?
2. How large is your retirement fund if you invest at 12%?
3. Assuming you invest at 12%, what is the total amount of your investment? What is the total amount of your investment earnings?