1. How much would you have to invest today to receive the following?
$8500 each year for 17 years at 8 percent _____________________
$58,000 each year for 30 years at 10 percent ____________________
2. At a growth (interest) rate of 16 percent annually how long will it take for a sum double? To triple.
3. Determine the amount of money in a savings account at the end of 3 years, give an initial deposit of $4000 and an annual interest rate of 4 percent when interest is compounded.
Annually
Semiannually
Quarterly
4. Annuity payments are assumed to come at the end of payment period (ordinary annuity). However, an exception occurs when the annuity payments come at the beginning of each period? The interest rate is 13 percent.
Future value ____________
5. Your grandfather has offered you a choice of one of the three following alternatives: $14500 now; $7500 a year for five years; or $10100 at the end of five years.
Assuming you could earn 9% annually compute the present value of each alternative
Present value:
$ 14500 ____________
$ 7500 _____________
$101000 ___________
Which alternative should you choose?
It you could earn 10 percent annually, compute the present value of each alternative:
$ 14,500 ________________
$ 7,500 ________________
$ 101,000 _______________
Which alternative should you choose?
6. You need $25,256 at the end of 8 years, and your only investment outlet is an 8 percent long-term certificate of deposit. With the Certificate of Deposit you make an initial investment at the beginning of the first year.
a. What single payment could be made at the beginning of the first year to achieve this objective?
b. What amount could you pay at the end of each year annually for 8 years to achieve this same objective?
7. Franklin Templeton has just invested $9,760 for his son (age one). This money will be used for his son’s education 19 years from now. He calculates that he will need $35,235 by the time the boy goes to school.
What rate of return will Mr. Templeton need in order to achieve this goal?
8. You wish to retire in 10 years, at which time you want to have accumulated enough money to receive an annual annuity of $13,000 for 15 years after retirement. During the period before retirement you can earn 9 percent annually, while after retirement you can earn 11 percent on your money.
What annual contribution to the retirement fund will allow you to receive the $13,000 annuity?
9. Del Monty will receive the following payments at the end of the next three years: $18,000 $21,000 and $23,000. Then from the end of the 4th year through the end of the 10th year he will receive an annuity of $24,000 per year.
At a discount rate of 10 percent, what is the present value of all three future benefits?
10. Your uncle borrows $55,000 from the bank at 9 percent interest over the seven-year life of the loan.
What equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest? How much of his first payment will be applied to interest? To principal? How much of his second payment will be applied to each?
11. Your parents have accumulated a $120,000 nest egg. They have been planning to use this money to pay college cost to be incurred by you and your sister, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $33,000 to help her get started, and they have decided to take year-end vacations costing $10,000 per year for the next four years. Use 7 percent as the appropriate interest rate throughout this problem.
How much money will your parents have at the end of four years to help you with graduate school, which you will start then?
Funds available ______________
You plan to work on a master’s and perhaps a PhD. If graduate school cost $30,300 per year, approximately how long will you be able to stay in school based on these funds?
Number of years ____________
12. Gulliver Travel Agencies thinks interest rates in Europe are low. The firm borrows euros at 5 percent for one year. During this time period the dollar falls 17 percent against the euro. What is the effective interest rate on the loan for one year?
Effective interest rate ___________________%