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Chapter 5 - Exercises
1.
Suppose you invest $500 today. If your investment pays 6% interest per year, how much will you have at the end of four years? Used Calculator:
FV = 500 * (1+0.06)^4 = 631.24
2.
Suppose you invest $5,000 in a bank CD that pays 1.2% interest per year. How much money will you receive when you cash in the CD in 5 years?
Used Calculator:
FV = 5,000 * (1+ 0.012)^5 = 5,307.29
3.
Suppose you invest $5,000 in a bank CD that pays 1.2% interest per year, but it is compounded monthly. How much money will you receive when you cash in the CD in 5 years? [Hint: FV=
PV
∗(
1
+
r
n
)
nt
]
*In this case, n=12 represents the number of times interest is compounded per year.
Used Calculator:
FV = 5,000 * (1 + 0.012/12)^(12*5) = 5,309.02
4.
Suppose you receive a $10,000 gift from your rich aunt. You decide to invest the gift in the stock market by buying an S&P 500 ETF. Suppose the ETF earns 20% in the first year, 14% in the second year, -12% in the third year, 4% in the fourth year, and then 6% for three straight years. How much will your investment be worth after 7 years?
Year 1 = 10,000 * (1 + .20) = 12,000
Year 2 = 12,000 * (1+.14) = 13,680
Year 3 = 13,680 * (1 + (-.12) = 13,680 * 0.82 = 11.217.60
Year 4 = 11,217.60 * (1 + 0.04) = 11,666.30
FV Year 5 - 7 = 11,666.30 * (1 + 0.06)^3 = 13,894.749 = 13,894.75
5.
Suppose you buy 100 shares of Facebook (FB) Stock for $190 per share. At the end of 3 years, FB is selling for $310 per share. What return did you earn? State your answer as an
APR (Annual percentage return).
Used Calculator:
PV = 19,000, FV = 31,000
Rate = 17.73%
31,000 = 19,000 (1+r)^3
Solve for r:
6.
From question #4, what rate of return, stated in annual terms, did you earn on your investment? What was the average rate of return?
[Hint: Avg rate= (r1+r2+…+r7)/7. For example, r1=20%, r2=14%
......
]
Avg rate = (20% + 14% + (-12%) + 4% + 6% + 6% + 6%) / 7 = 6.285 = 6.29%
7.
Suppose you are confident you can earn 8% per year by investing in the stock market. If your goal is to be a millionaire in 15 years, how much would you need to invest today?
Used Calculator:
PV = 1,000,000 / (1+0.08)^15
PV = 315,241.70
8.
How much would you be willing to pay for an investment that promises to pay you $100,000 in 20 years? Assume your required return on such an investment is 10% per year.
Used Calculator:
PV = 100,000 / (1+0.10)^20 = 100,000 / (1.10)^20 = 100,000/6.72749994933
PV = 14,864.3628 = 14,864.36
9.
Suppose you paid $100,000 for an investment that promises to pay you $150,000 in 10 years. If you required return is 4% per year, was this a good deal?
Used Calculator
FV = 100,000 * (1.04)^10 = 148,024.43
No this is not a good deal since in 10 years with that return rate of 4% you would not be able to make the full $150,000 that was promised you would need to have a higher return rate.
10. If you invest $10,000 today in an account earning 8% per year, how many years until you
have doubled your money? Tripled your money?
Used Calculator:
20,000 = 10,000 * (1.08)^t
T= 9.01 years
30,000 = 10,000 * (1.08)^t
T = 14.27 years
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Related Questions
Can u also answer part 2
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You plan to invest $5,000 into an account. If you would like to have $10,000 in 15 years, what rate of return must you earn?
Question 5 options:
6.02%
5.24%
4.73%
7.55%
7.11%
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Solve this question with steps please. The subject is financial management.
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Suppose you want to have $300,000 for retirement in 25 years. Your account earns 9% interest.a) How much would you need to deposit in the account each month?
b) How much interest will you earn?
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PROBLEM (1-4)
(A) If you want to have $250 in 5 years and you can earn an annual return of 7%, how much must you invest today? Be sure to use cell references and make sure
that your answer appears as a positive value.
(B) If you make a one-time deposit today of $800 you can earn 10% per year, how much would you have in your account after 15 years? Be sure to use cell
references and remember that deposits from you are outflows.
(C) If your investment of $1,254 declined to $435 in 6 years, what compounded annual rate of return would you have earned? Be sure to use cell references and
to convert your answer to a percent rounded to two places after the decimal point.
(D) If you can earn 5% per year, precisely how many years would it take for your investment of $450 to turn into $1,200? Be sure to use cell references and
display your answer rounded to two places after the decimal point.
TIME VALUE OF MONEY: LUMP SUMS
PV
FV
r
n
(A)
(B)
(C)
(D)
arrow_forward
Plzz solve this
arrow_forward
question 20
arrow_forward
6
arrow_forward
• What is the difference between simple
interest and compound interest?
• Suppose you have $500 to invest and you
believe that you can earn 8% per year over
the next 15 years.
How much would you have at the end
of 15 years using compound interest?
How much would you have using simple interest?
arrow_forward
4.Q
arrow_forward
JUST NEED SUBPARTS D AND E
You are trying to decide how much to save for retirement. Assume you plan to save
$4,000
per year with the first investment made one year from now. You think you can earn
7.0%
per year on your investments and you plan to retire in
29
years, immediately after making your last
$4,000
investment.
a. How much will you have in your retirement account on the day you retire?
b. If, instead of investing
$4,000
per year, you wanted to make one lump-sum investment today for your retirement that will result in the same retirement saving, how much would that lump sum need to be?
c. If you hope to live for
28
years in retirement, how much can you withdraw every year in retirement (starting one year after retirement) so that you will just exhaust your savings with the
28th
withdrawal (assume your savings will continue to earn
7.0%
in retirement)?
d. If, instead, you decide to withdraw
$70,000
per year in retirement (again with the first withdrawal one…
arrow_forward
Q : no 1
(A) Suppose you save $4,000 per year at the beginning of each year for 10 years and earn 8.5% interest per year. How much will you have at the end of 10 years?
(B) you have Rs.25,000 which you deposited in a bank account, bank promised to pay you back Rs.75,000 after 8 years.what rate offered by bank?
(C) you borrowed Rs.500,000 at 18% for five years.
Part a) how much you will pay each year to settle this loan?
Part b) If you decided to settle this loan after two years, what additional amount you will pay at the end of two years to fully payback this loan while bank is not imposing any fine on you?
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9
arrow_forward
Q1)Suppose you save $4,000 per year at the end of each year for 3 years and earn 5% interest per year. How much will you have at the end of 3 years?
a)Suppose you save $4,000 per year at the end of each year for 10 years and earn 8.5% interest per year. How much will you have at the end of 10 years?
b)Suppose you save $1,000 per year at the beginning of each year for 3 years and earn 5% interest per year. What is the present value of this annuity?
c)Suppose you save $500 per year at the end of each year for 15 years and earn 8.25% interest per year. What is the present value of this annuity?
d)Suppose that the constant and perpetual cash flow is $1,000 and the discount rate is 8%. What is the value of this perpetuity?
e)Suppose that the constant and perpetual cash flow is $1,000 and the discount rate is 10%. What is the value of this perpetuity?
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Please draw the cash diagram
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Suppose the interest rate is 3.6%
b. Having $650 in one year is equivalent to having what amount today?
c. Which would you prefer, $650 today or $650 in one year?
Does your answer depend on when you need the money? Why or why not?
**round to the nearest cent**
arrow_forward
???
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How much money do you need to deposit in a bank account now so that you can withdraw $10,000
every 4 years forever if the interest rate is 7% per year, and the first withdrawal is scheduled 4 years
from now?
a. $41,051
b. $138,332
C. $32,175
d. $31,051
e. $34,583
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You are opening an investment account that will earn 6.5% compounded annually. You will invest $1,000 one year from today, $800 two years from today, and 1,200 three years from today. What will the value of your account be 4 years from today?
Question 3 options:
3,518
3.586
3,242
3,422
3,393
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would you mind helping me here please?
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Hello tutor solve this accounting question
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please help with this Q
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You plan to deposit $700 in a bank account now and $200 at the end of one year. If the account earns 3% interest per
year, what will the balance be in the account right after you make the second deposit?
There will be $ in the account right after the second deposit.
(Type an integer or a decimal.)
w an example
....
Get more help.
Save
Clear all
In
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Interest Rate?
Problem 2
In 4 years, you plan to buy a new car and will need a down payment. How much would you need to invest
today in order to have $8,000 in 4 years? Assume interest rates are 4%.
Which table will you use for the above calculation?
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Factor?
hapter
What is the amount of investment?
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value of money and Бопа
X A P Q S Y
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- Can u also answer part 2arrow_forwardYou plan to invest $5,000 into an account. If you would like to have $10,000 in 15 years, what rate of return must you earn? Question 5 options: 6.02% 5.24% 4.73% 7.55% 7.11%arrow_forwardSolve this question with steps please. The subject is financial management.arrow_forward
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