Scribd
Upload
4 views

Question I

Uploaded by

Chen Song
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
4 views

Question I

Uploaded by

Chen Song
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

Question I

1. Simple Interest versus Compound Interest.


First City Bank pays 7 percent simple interest on its savings account balances, whereas
Second City Bank pays 7 percent interest compounded annually. If you made a deposit of
$7,900 in each bank, how much more money would you earn from your Second City Bank
account at the end of 10 years?

2. Calculating Future Values.


You are scheduled to receive $10,000 in two years. When you receive it, you will invest it for
six more years at 7.5 percent per year. How much will you have in eight years?

3. Calculating Present Values.


You need $85,000 in 10 years. If you can earn 0.78 percent per month, how much will you
have to deposit today?

4. Calculating Rates of Return.


Assume the total cost of a college education will be $235,000 when your child enters college
in 18 years. You presently have $53,000 to invest. What annual rate of interest must you earn
on your investment to cover the cost of your child’s college education?

5. Calculating the Number of Periods.


You can earn 0.31 percent per month at your bank. If you deposit $1,800, how long must you
wait until your account has grown to $3,100?

6. Calculating Future Values.


You have $5,800 to deposit. Regency Bank offers 12 percent per year compounded monthly
while King Bank offers 12 percent but will only compound annually. How much will your
investment be worth in 20 years at each bank?

7. Valuing Perpetuities.
Maybepay Life Insurance Co. is selling a perpetual annuity contract that pays $2,750
monthly. The contract currently sells for $400,000. What is the monthly return on this
investment vehicle? What is the APR? The effective annual return?

8. Calculating Annuity Future Values.


You are to make monthly deposits of $500 into a retirement account that earns an APR of 9.5
percent compounded monthly. If your first deposit will be made one month from now, how
large will your retirement account be in 35 years?

9. Calculating Annuities Due.


You want to buy a new sports car from Muscle Motors for $68,500. The contract is in the
form of a 60-month annuity due at an APR of 4.5 percent. What will your monthly payment
be?

10. Comparing Cash Flow Streams.


You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve
offered you two different salary arrangements. You can have $6,100 per month for the next
two years, or you can have $5,100 per month for the next two years, along with a $25,000
signing bonus today. If the interest rate is 7 percent compounded monthly, which do you
prefer?

You might also like