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MOF Homework 1

The document contains 10 math problems related to finance concepts such as present and future value, interest rates, and annuities. Each problem includes the calculated answer and the formula used to solve it, with topics like compound interest, bonds, savings plans, and perpetuities.

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Adjanni Arbon Doce
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449 views

MOF Homework 1

The document contains 10 math problems related to finance concepts such as present and future value, interest rates, and annuities. Each problem includes the calculated answer and the formula used to solve it, with topics like compound interest, bonds, savings plans, and perpetuities.

Uploaded by

Adjanni Arbon Doce
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Mathematics of Finance

HOMEWORK 1

1. How much would $100, growing at 5% per year, be worth after 75 years?
$3,883.27
formula: =FV(5%,75,,-100)
2. Suppose a State of California bond will pay $1,000 eight years from now. If the going interest rate
on these 8-year bonds is 5.5%, how much is the bond worth today?

$651.60
formula: =PV(5.5%,8,,-1000)
3. Suppose the U.S. Treasury offers to sell you a bond for $747.25. No payments will be made until
the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest
rate would you earn if you bought this bond at the offer price?

6.00%
formula: =RATE(5,0,-747.25,1000)

4. Five years ago, Weed Go Inc. earned $1.50 per share. Its earnings this year were $3.20. What
was the growth rate in earnings per share (EPS) over the 5-year period?

16.36%
formula: =RATE(5,,-1.5,3.2)

5. Janice has $5,000 invested in a bank that pays 3.8% annually. How long will it take for her funds
to triple?

29 years
formula: =NPER(3.8%,,-5000,15000)

6. You want to buy a new sports car 3 years from now, and you plan to save $4,200 per year,
beginning one year from today. You will deposit your savings in an account that pays 5.2% interest.
How much will you have just after you make the 3rd deposit, 3 years from now?

$13,266.56
formula: =FV(5.2%,3,-4200,,0)

7. You want to go to Europe 5 years from now, and you can save $3,100 per year, beginning one year
from today. You plan to deposit the funds in a mutual fund that you think will return 8.5% per year.
Under these conditions, how much would you have just after you make the 5th deposit, 5 years
from now?

$18,368.66
formula: =FV(8.5%,5,-3100,,0)

8. You want to quit your job and return to school for an MSCF degree 3 years from now, and you
plan to save $7,000 per year, beginning immediately. You will make 3 deposits in an account that
pays 5.2% interest. Under these assumptions, how much will you have 3 years from today?

$23,260.70
formula: =FV(5.2%,3,-7000,,1)

9. What is the PV of an ordinary annuity with 10 payments of $2,700 if the appropriate interest rate
is 5.5%?

$20,351.59
formula: =PV(5.5%,10,-2700,,0)

10. What’s the rate of return you would earn if you paid $950 for a perpetuity that pays $85 per
year?

8.95%
formula: =85/950

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