cJean Marie Linhart 2008Math 166 Finance IReview question:A bag contains 4 red, 3 green, 5 blue and 6 yellow Le-gos(TM). One at a time a Lego is removed, obser vedand replaced. This experiment is repeated 5 times andthe number of blue Legos is counted.Is this an example of Bernoulli trials? (Recall: 2 outcomesand results must be independent).Find a probability distribution for this experiment.If the Legos are not replaced, and 5 are removed at onceand the number of blue Legos is counted, how does theanswer to this problem change?11. If you take out a $5000 IRA at a ge 22 and it earns 8%annual interest compounded monthly, wha t will you havefor retirement at age 62?If you don’t save the $50 00 until age 42, now how muchwill you have at retirement at age 62?2. If you have accumulat ed $10,000 in credit card debton a card with a 20% annual interest rate, compoundedmonthly, how much interest do you accumulate that firstmonth?If you make a $25 monthly payment what happens?23. Wha t is the doubling time for money earning 8% annualinterest compounded quarterly?What is the tripling time?4. If you earn 10% compounded quarterly, what is the ef-fective annual rate?5. If you deposit $100/month into a savings a ccount ev-ery month for 5 years, earning 4% per year compoundedmonthly, what will you have at the end of 5 years? No tethat you make 60=5*12 payments so you put $600 0 intosavings dur ing this time.36. If you need to have $ 150,000 for when your newborn goesto college in 18 years, how much do you need to save ev-ery month if you can get a 6% annual return compoundedmonthly?How much interest do you earn over the entire 18 years?How much interest do you earn during the 10th year?7. If you purchase an ordinary annuity for $100,000 at 7%per year compounded quarterly for 20 years, what is themonthly payment you will receive over the 20 year pe-riod?What is the interest earned duri ng the first qua rter ofthe fifth year?48. You have a choice between tak ing a lump-sum payment o f$500000 or being paid $50,000 per year for 15 years. As-suming you can make 8. 3% a nnual interest compoundedannually, which of these is the bet ter
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