6.01 REVIEW PROBLEMS: FUTURE VALUE OF A SINGLE PRESENT VALUE 1. An individual recently purchased a 3-year certificate of deposit for $10,000. The CD earns 6.08 compounded quarterly. Find a) the final future value of the CD, and b) the total compound interest earned. (10) 2. The beneficiary on a life insurance policy plans to invest $100,000 from the proceeds in a guaranteed investment contract (GIC) that will earn 88 compounded semiannually for 20 years. Find a) the total future value of the contract, and b) the total compound interest earned. (10) 3. A retired worker rolled over $200,000 from a 401(k) retirement plan into an IRA account 15 years ago. The account has earned an average rate of return of 10% compounded quarterly during this holding period. Find a) the final value of the account, and b) the total compound interest earned. (10) 4. An individual invested $50,000 in a stock mutual fund four years ago. The annual rates of return on the fund are reported below. Find the a) compound value of the fund at the end of each year, b) total compound return over the full term, and c) total compound percent return. Summarize using the following format. (15) Year Annual End-of-Year Return Pund Value 1 +13.68 2 +25.45 3 -9.58 4 + 6.83 Total Return % Total Return 5. A sum of $20,000 was recently invested at 6% for three years. Consider the following two investment arrangements. 1) Assuming the investment is structured as a simple interest note, compute the total interest earned and the future value of the note. 2) Assuming the investment is structured as a compound interest bond with interest compounded semiannually, compute the future value and the total interest earned. Explain the difference between simple interest and compound interest. Which interest amount is larger? Compute the difference and explain the reason. (15) Future Interest Value Earned Simple Interest Note Compound Interest Bond Additional Interest Earned