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Homework answers / question archive / Question1)To what amount will ?$4,800 Invested for 10 years at 11 percent compounded annually? accumulate? Problem If you deposit $4800 into an account paying 11% annual interest compounded yearly , how much money will be in the account after 10 years? Result The amount is $13629

Question1)To what amount will ?$4,800 Invested for 10 years at 11 percent compounded annually? accumulate?

Problem

If you deposit $4800 into an account paying 11% annual interest compounded yearly , how much money will be in the account after 10 years?

Result

The amount is $13629.22 and the interest is $8829.22.

Question 2

(Future value) Leslie? Mosallam, who recently sold her? Porsche, placed ?$9,200 in a savings account paying annual compound interest of 5 percent.

a. Calculate the amount of money that will accumulate if Leslie leaves the money in the bank for

2?, 6?, and 16 ?year(s).

b. Suppose Leslie moves her money into an account that pays 7 percent or one that pays 9 percent. Rework part ?(a?) using 7 percent and 9 percent.

c. What conclusions can you draw about the relationship between interest? rates, time, and future sums from the calculations you just? did?

Question 3

?(Future value) You are hoping to buy a house in the future and recently received an inheritance of ?$24,000. You intend to use your inheritance as a down payment on your house.

a. If you put your inheritance in an account that earns 8 percent interest compounded? annually, how many years will it be before your inheritance grows to ?$33,000??

b. If you let your money grow for 9.75 years at 8 percent?, how much will you? have?

c. How long will it take your money to grow to ?$33,000 if you move it into an account that pays 5 % compounded? annually?

How long will it take your money to grow to ?$33,000 if you move it into an account that pays 13 %? ?

d. What does all this tell you about the relationship among interest? rates, time, and future? sums?

Question 4

Sources used:

- http://www.moneychimp.com/calculator/compound_interest_calculator.htm
- http://www.mathportal.org/calculators/financial-calculators/compound-interest-calculator.php

?(Compound interest with? non-annual periods) Calculate the amount of money that will be in each of the following accounts at the end of the given deposit? period:

Question 5

?(Compound interest with? non-annual periods?)

You just received a bonus of ?$1,000.

a. Calculate the future value of ?$1,000?, given that it will be held in the bank for 8 years and earn an annual interest rate of 5% percent.

b. Recalculate part ?(a?) using a compounding period that is? (1) semiannual and? (2) bimonthly.

c. Recalculate parts ?(a?) and ?(b?) using an annual interest rate of 10% percent.

d. Recalculate part ?(a?) using a time horizon of 16 years at an annual interest rate of 5% percent.

e. What conclusions can you draw when you compare the answers in parts ?(c?) and ?(d?) with the answers in parts ?(a?) and ?(b?)?

Question 6

?(Future value) If you deposit ?$2,600 today into an account earning an annual rate of return of 12% ?percent, what would your account be worth in 35 years? (assuming no further?deposits)? In 40 ?years?

Question 7

? (Present value) Sarah Wiggum would like to make a single investment and have ?$2.1 Million at the time of her retirement in 32 years. She has found a mutual fund that will earn

6% percent annually. How much will Sarah have to invest? today?

If Sarah earned an annual return of 16% ?percent, how soon could she then? retire?

Question 8

? (Solving for *n*?) How many years will it take for ?$490 to grow to ?$1,084.33

if? it's invested at 9 percent compounded? annually?

Question 9

? (Present value) Ronen Consulting has just realized an accounting error that has resulted in an unfunded liability of ?$370,000 due in 29 years. In other? words, they will need

?$370,000 in 29 years. Toni? Flanders, the? company's CEO, is scrambling to discount the liability to the present to assist in valuing the? firm's stock. If the appropriate discount rate is 9 ?percent, what is the present value of the? liability?

Question 10

?(Solving for *i*?) Lance Murdock purchased a wooden statue of a Conquistador for $7,000 to put in his home office 7 years ago. Lance has recently? married, and his home office is being converted into a sewing room. His new? wife, who has far better taste than? Lance, thinks the Conquistador is hideous and must go immediately. Lance decided to sell it on? e-Bay and only received

?$5,100 for? it, and so he took a loss on the investment. What was his rate of? return, that?is, the value of

*i*??

Question 11

?(Present-value comparison) You are offered ?$80,000 today or

?$360,000 in 11 years. Assuming that you can earn 12 percent on your?money, which should you? choose?

Question 12

(Calculating an? EAR) Your grandmother asks for your help in choosing a certificate of deposit? (CD) from a bank with a? one-year maturity and a fixed interest rate. The first certificate of? deposit, CD? #1, pays 5.95 % percent APR compounded annually?, while the second certificate of? deposit, CD? #2, pays 6.00% percent APR compounded daily.

What is the effective annual rate? (the EAR) of each? CD, and which CD do you recommend to your?grandmother?

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