Question
3. Use the present value and future value formulas to solve the following problems. Confirm your answers with your financial calculator. Show both methods of
3. Use the present value and future value formulas to solve the following problems. Confirm your answers with your financial calculator. Show both methods of calculation in your answers. When performing your calculations, keep as many decimal places as you can for intermediate answers, but round your final answers to two decimal places. (10 marks total)
a. If you invest $1000 today at 3% annual interest rate, how much money would you have in
i) one years time? (1 mark)
ii) 10 years time? (1 mark)
iii) 30 years time? (1 mark)
b. You estimate that you will need $350,000 to buy a house some time in the future. If your bank account pays an annual interest rate of 3%, how much money must you deposit now to purchase the house in
i) one years time? (1 mark)
ii) 10 years time? (1 mark)
iii) 30 years time? (1 mark)
c. You are saving up to buy a $10,000 used car. You currently have $5,000 in your savings account, which pays an interest rate of 3%. If you do not put any more money into this savings account, how long will you have to wait before you can buy the used car? (2 marks)
d. You are saving up to buy a $10,000 used car. You currently have $5,000 in your savings account. If you do not put any more money into this savings account, what interest rate (in percentage) must you earn to achieve your goal of buying the used car in two years time? (2 marks)
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