Your friend has agreed to lend you 5,000 today if you will repay ...

[Capo]

Your friend has agreed to lend you 5,000 today if you will repay him 5,061.36 in three months. What annual interest rate is your friend charging you for this loan?
 
  A) 1.23
  B) 5.00
  C) 2.47
  D) 5.36

Question 2

You are currently 25 years of age. You have developed a lifetime budget that includes 50,000 at age 40 for a
  college fund for your kids and 25,000 per year for 20 years to supplement your retirement, the first payment on
  your 60th birthday and
 
  the last payment on your 79th birthday. You open an investment account on your 25th
  birthday that promises to pay 9 interest compounded annually. You want to deposit equal annual amounts
  into the account every year on your birthday, starting today (your 25th birthday) and continuing until you are
  40 years old (i.e., the last deposit is made on your 40th birthday). How much will each deposit have to be if you
  want to meet your financial goals?

[josephsuarez]

Answer to Question 1

B
Explanation: B) r = (FV/PV)(1/n) -1 = (5,061.36/5,000 ) (1/.25 ) - 1 = 5.00.

Answer to Question 2

2,859.86, based on the present value of the retirement annuity at age 59 is 228,213.64; this amount discounted back to
age 40 = 44,385.20; this amount is added to the 50,000 needed at age 40, for a total need at age 40 of 94,385.20; this
amount is the future value of a 16 year annuity with an interest rate of 9 per year, yielding an annual payment of
2,859.86.