1. Your wealthy uncle established a bank account with $1,400 for you when you were born. For the first 7 years of your life, the interest rate earned on the account was 5%. Since then, rates have been only 3%. Now you are 22 years old and ready to cash in. How much is in your account?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

2. What is the present value of the following cash-flow stream if the interest rate is 5%?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Year

Cash Flow

1

$

100

2

300

3

200

Present value

3. A factory costs $260,000. You forecast that it will produce cash inflows of $70,000 in year 1, $130,000 in year 2, and $200,000 in year 3. The discount rate is 10%.

a.What is the value of the factory?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

b.Is the factory a good investment?

Yes

No

4. A famous quarterback just signed a contract for $8 million, providing $2.7 million a year for 4 years. A less famous receiver signed a contract for $7.0 million, providing $3 million now and $2.2 million a year for 4 years. The interest rate is 8%.

a.What is the PV of the quarterback's contract?(Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

b.What is the PV of the receiver's contract?(Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

c.Who is better paid?

Quarterback

Receiver

5. a.If you borrow $2,000 and agree to repay the loan in six equal annual payments at an interest rate of 11%, what will your payment be?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Amount of payment

b.What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Amount of payment

6. You believe you will need to have saved $470,000 by the time you retire in 30 years in order to live comfortably. If the interest rate is 7% per year, how much must you save each year to meet your retirement goal?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Annual savings

7. A store will give you a 4.50% discount on the cost of your purchase if you pay cash today. Otherwise, you will be billed the full price with payment due in 1 month. What is the implicit borrowing rate being paid by customers who choose to defer payment for the month?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Effective annual rate

8. a.How much will $100 grow to if invested at a continuously compounded interest rate of 12% for 7 years?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

b.How much will $100 grow to if invested at an annual interest rate of 12% for 7 years?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Future value

9. n April 2016 a pound of apples cost $1.47, while oranges cost $1.11. Four years earlier the price of apples was only $1.26 a pound and that of oranges was $.97 a pound.

a.What was the annual compound rate of growth in the price of apples?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Compound annual growth rate

% per year

b.What was the annual compound rate of growth in the price of oranges?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Compound annual growth rate

% per year

c.If the same rates of growth persist in the future, what will be the price of apples in 2030?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price

10. An engineer in 1950 was earning $5,100 a year. In 2015 she earned $99,000 a year. However, on average, prices in 2015 were higher than in 1950. What was her real income in 2015 in terms of constant 1950 dollars? Use the data inTable 5.8.(Round your answer to 2 decimal places.)

Real income in 2015

%

1. Your wealthy uncle established a bank account with $1,400 for you when you were born. For the first 7 years of your life, the interest rate earned on the account was 5%. Since then, rates have been only 3%. Now you are 22 years old and ready to cash in. How much is in your account? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 2. What is the present value of the following cashflow stream if the interest rate is 5%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Cash Year Flow 1 $ 100 2 300 3 200 Present value 3. A factory costs $260,000. You forecast that it will produce cash inflows of $70,000 in year 1, $130,000 in year 2, and $200,000 in year 3. The discount rate is 10%. a. What is the value of the factory? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Is the factory a good investment? Yes No 4. A famous quarterback just signed a contract for $8 million, providing $2.7 million a year for 4 years. A less famous receiver signed a contract for $7.0 million, providing $3 million now and $2.2 million a year for 4 years. The interest rate is 8%. a. What is the PV of the quarterback's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is the PV of the receiver's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) c. Who is better paid? Quarterback Receiver 5. a. If you borrow $2,000 and agree to repay the loan in six equal annual payments at an interest rate of 11%, what will your payment be? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Amount of payment b. What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Amount of payment 6. You believe you will need to have saved $470,000 by the time you retire in 30 years in order to live comfortably. If the interest rate is 7% per year, how much must you save each year to meet your retirement goal? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual savings 7. A store will give you a 4.50% discount on the cost of your purchase if you pay cash today. Otherwise, you will be billed the full price with payment due in 1 month. What is the implicit borrowing rate being paid by customers who choose to defer payment for the month? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Effective annual rate 8. a. How much will $100 grow to if invested at a continuously compounded interest rate of 12% for 7 years? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. How much will $100 grow to if invested at an annual interest rate of 12% for 7 years? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Future value 9. n April 2016 a pound of apples cost $1.47, while oranges cost $1.11. Four years earlier the price of apples was only $1.26 a pound and that of oranges was $.97 a pound. a. What was the annual compound rate of growth in the price of apples? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Compound annual growth rate % per year b. What was the annual compound rate of growth in the price of oranges? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Compound annual growth rate % per year c. If the same rates of growth persist in the future, what will be the price of apples in 2030? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price 10. An engineer in 1950 was earning $5,100 a year. In 2015 she earned $99,000 a year. However, on average, prices in 2015 were higher than in 1950. What was her real income in 2015 in terms of constant 1950 dollars? Use the data in Table 5.8. (Round your answer to 2 decimal places.) Real income in 2015 %