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a. Calculate the future value of $1,000, given that it will be held in the bank for 6 years and earn an annual interest rate of 6 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 12 percent.d. Recalculate part (a) using a time horizon of 12 years at an annual interest rate of 6 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 2: If you deposit $3,900 today into an account earning an annual rate of return of 7 percent, what would your account be worth in 25 years (assuming no further deposits)? in 30 yearsQuestion 3: Sarah Wiggum would like to make a single investment and have $2.1 million at the time of her retirement in 34 years. She found a mutual fund that will earn her 5% annually. How much will Sarah have to invest today? If Sarah earned an annual return of 18%, how soon could she then retire?If Sarah can earn 5 % annually for the next 34 years, the amount of money she will save to invest today is $_________ (round to the nearest cent)Question 4: How many years will it take for $500 to grow to $1,076.58 if its invested at 6% compounded annually?Question 5: Ronen Consulting has just realized an accounting error that had resulted in an unfunded liability of $375,000 due in 28 years. In other words, they will need $375,000 in 28 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%, what is the present value of the liability? If the appropriate discount rate if 9%, the present value of $375,000 liability due in 28 years is $__________ (round to the nearest cent)

Question 6: Lance Murdock purchased a wooden statue of a Conquistador for $7,900 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 an only received $4,800 for it, and so he took a loss of the investment. What was his rate of return, that is, the value of i?What was Lance Murdock’s rate of return, that is, the value of i? Enter a negative percentage for a loss ______% (round to two decimal places)Question 7: You are offered $90,000 today or $320,000 in 15 years. Assuming that you can earn 13% on your money, which should you chose?If you are offered $320,000 in 15 years and you can earn 13% on your money, what is the present value of $320,000 $_______________ (round to the nearest cent)

Question 8: 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 2.45% APR compounded quarterly, while the second certificate of deposit, CD #2, pays 2.50% APR compound daily. What is the effective annual rate (the EAR) of each CD, and which CD do you recommend to your grandmother?If the first certificate of deposit, CD #1 pays 2.45% APR compounded quarterly, the EAR for the deposit is __________% (round to two decimal places)

Tags:

Income Statement

Present Value

future value

compounding period

annual interest rate

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