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FIN 515 Week 2 Problem Set

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FIN 515 Week 2 Problem Set

Chapter 4

1. Calculate the future value of $2000 in

a. five years at an interest rate of 5% per year;

b. ten years at an interest rate of 5% per year; and

c. five years at an interest rate of 10% per year.

d. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)?

2. What is the present value of $10,000 received

a. twelve years from today when the interest rate is 4% per year;

b. twenty years from today when the interest rate is 8% per year; and

c. six years from today when the interest rate is 2% per year?

.Your brother has offered to give you either $5,000 today or $10,000 in 10 years. If the interest rate is 7% per year, which option is preferable?

3. Consider the following alternatives.

i. $100 received in 1 year

ii. $200 received in 5 years

iii. $300 received in 10 years

a. Rank the alternatives from most valuable to least valuable if the interest rate is 10% per year.

b. What is your ranking if the interest rate is only 5% per year?

c. What is your ranking if the interest rate is 20% per year?

4. Your daughter is currently 8 years old. You anticipate that she will be going to college in 10 years. You would like to have $100,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 3% per year, how much money do you need to put into the account today to ensure that you will have $100,000 in 10 years?

5. You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 5 years after the date of your retirement. Which alternative should you choose if the interest rate is

a. 0% per year;

b. 8% per year; and

c. 20% per year?

6. You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 1 year from now, $1,500...

http://www.homeworkwarehouse.com/downloads/fin-515-week-2-problem-set/

FIN 515 Week 2 Problem Set

Chapter 4

1. Calculate the future value of $2000 in

a. five years at an interest rate of 5% per year;

b. ten years at an interest rate of 5% per year; and

c. five years at an interest rate of 10% per year.

d. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)?

2. What is the present value of $10,000 received

a. twelve years from today when the interest rate is 4% per year;

b. twenty years from today when the interest rate is 8% per year; and

c. six years from today when the interest rate is 2% per year?

.Your brother has offered to give you either $5,000 today or $10,000 in 10 years. If the interest rate is 7% per year, which option is preferable?

3. Consider the following alternatives.

i. $100 received in 1 year

ii. $200 received in 5 years

iii. $300 received in 10 years

a. Rank the alternatives from most valuable to least valuable if the interest rate is 10% per year.

b. What is your ranking if the interest rate is only 5% per year?

c. What is your ranking if the interest rate is 20% per year?

4. Your daughter is currently 8 years old. You anticipate that she will be going to college in 10 years. You would like to have $100,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 3% per year, how much money do you need to put into the account today to ensure that you will have $100,000 in 10 years?

5. You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 5 years after the date of your retirement. Which alternative should you choose if the interest rate is

a. 0% per year;

b. 8% per year; and

c. 20% per year?

6. You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 1 year from now, $1,500...

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