1. A Homeowner in a sunny climate has the opportunity to install a solar water heater in his home for a cost of $2,200. After installation the solar water heater will produce a small amount of hot water every day, forever, and will require no maintenance. How much must the homeowner save on water heating cost every year if this is to be a sound investment? (The interest rate is 10% per year)

2. You are thinking of purchasing a house. The house costs $250,000. You have $36,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30 year mortgage that requires monthly payments and has an interest rate of 8% per year. What will your monthly payment be?

3. Your brother has offered to give you either $65,000 today or $130,000 in 12 years. IF the interest rate is 5% per year, which option is preferable?

4. A rich relative has bequeathed you a growing perpetuity. The first payment will occur in one year and be $4,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 5% larger than the last payment. This pattern of payments will go on forever. If the interest rate is 9% per year, What is today’s value of the bequest?

5. Your father spent all of his adult life working in a small T-shirt making firm. His first year of sales was $118,000 and his last year of sales was $450,000. IF the firm grew at an average rate of 3.15% per year, how many years did your father sell T-shirts in his firm?