1)What is the future value (in $) of cash flows 1-3 at the end of year 3, assuming a 6% interest rate (compounded annually)? End of year Cash flow $500 870 830 1 2 4 3,500 1,250 4,530 2,350 6 7 2)You are planning your retirement and you come to the conclusion that you need to have saved $1000000million in 30 years

1)At the end of year 3 future value = CF1 * (1+I)^2 + CF2 * (1 + I)^1 + CF3 * (1 + I)^0

= 500 * (1+6%)^2 + 870 * (1+6%)^1 + 830 * (1+6%)^0

= 2314

2)Method 1: Using future value of annuity formula

Future value of annuity = $1,000,000

We know FV of annuity = P * ( (1+r)^n   - 1 ) / r

P: Annual savings

r: rate of interest (11% in this case)

n: number of years (30 years in this case)

1,000,000 = P * ( (1+11%)^30 - 1 ) / 11%

After solving the above equation

P = $ 5,024.598476

P= $ 5,024.60 (approx)

So you have to put $ 5,024.60 (approx) at the end of every year

Method 2: Using future value of annuity table

Future value = P * FV of annuity for 11% for 30 years

From annuity table, FV of annuity for 11% for 30 years = 199.0208779

Putting the values in above equation

1,000,000 = P * 199.0208779

P= 1,000,000/199.0208779

P = $ 5,024.598476

P= $ 5,024.60 (approx)

3)Mortgage amount = Cost of house - down payment = $300,000 - $35,000 = $265,000

We can calculate monthly mortgage payment using a financial calculator using below key strokes:

loan period and interest rate will be monthly.

N = no. of months = 30*12 = 360; I/Y = interest rate = 5%/12 = 0.4167%; PV = mortgage amount = 265,000; FV = future value = 0 > CPT = compute > PMT = monthly mortgage payment = $1,422.64