Ch 5A Questions Problem 1: Calculating Future Values. For each of the following compute the future value: Present Value ($) Years Interest Rate Future Value($) 3680 5 20% 9740 10 86399 15 10% 565000 20 4% 6% Problem 2: Calculating Present Values. For each of the following compute the present value: Present Value ($) Years Interest Rate Future Value($) 7 4% 999 9 8% 1999 17 16% 11999 23 32% 111999 Problem 3. Calculating Interest Rates For each of the following, solve for the unknown interest rate: Present Value (5) Years Interest Rate(%) 300 350 36000 67000 29 4 10 16 Future Value(5) 400 900 90000 2000000 Problem 4: Calculating the Number of Periods. For each of the following, solve for the unknown number of payments: Present Value (5) Years Interest Rate Future Value(s) 640.45) 6% 963 872 7% 1603.14 56329 12% 79138.19 112217.97 2% 166750 Problem 5: Calculating the Number of Periods/Present Value. You are trying to save to buy a new $78,000 Volkswagen. You have $10,000 today that can be invested at your bank. 5a. The bank pays 3.75% annual interest on its accounts. How long will it be before you have enough to buy the car? It will be _years. 5b. Instead of depositing funds in the bank you decide to invest in a mutual fund that you believe will achieve a 7.32% annual rate of return. You want to buy the car in 15 years on the day you turn 35, how much must you invest today? I must invest $ today. Problem 6: Calculating Future Values. You have just made your first $1,000 contribution to your individual retirement account (IRA), Assume you earn a 12% rate of return and make no additional contributions 6a. When you retire in 32 years, the account will be worth $ 6b. If you wait 5 years before making your initial contribution, the account will be worth $ Problem 7: Calculating Future Values. You are scheduled to receive $17,000 in 3 years. When you receive it, you will invest it for nine more years at 6% per year. In twelve years, the account will be worth $ Problem 8: Calculating the Number of Periods. You expect to receive $60,000 at graduation in 2 years. You plan on investing it at 6% until you have $150,000. How long will you have to wait from now? I will have to wait _years from now. Problem 9: Calculating Present Values. You need $40,000 in nine years. If you can earn 22% per month, how much will you have to deposit today? I will have to deposits today. Problem 10: Calculating Present Values. You have decided that you want to be a millionaire when you retire in 32 years. 10a. If you can earn a 8% return, how much do you have to invest today? I have to invest $ today $ 10b. If you can earn an 10% return, how much do you have to invest today? I have to invest today. 11) Calculating Annuity Values You want to have $75,000 in your savings account six years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 7.1 per cent interest, what amount must you deposit each year? 12) Calculating Annuity Values Vanzan Bank offers you a $61,000, nine year term loan at 13% annual interest. What will your annual loan payment be? 13) Calculating EAR Last National Bank charges 13.2 percent compounded monthly on its business loans. First Diversified Bank charges 13.5 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan? a. Effective rate of 13.2 percent compounded monthly = b. Effective rate of 13.5 percent compounded semiannually = 14) Valuing Perpetuities Easydoesit Life Insurance Company is selling a perpetuity contract that pays a $936 monthly The contract currently sells for $93,600. What is the monthly return on this investment vehicle? What is the APR? The effective annual return? a. Monthly return = b. APR C. EAR = 15) Calculating Interest Expense You receive a credit card application from Chameleon Banks Savings and Loan offering an introductory rate of 2.49 percent per year, compounded monthly for the first six months, increasing thereafter to 16 percent compounded monthly. Assuming you transfer the $10,000 balance from your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year? $ 16) Calculating the Number of Periods You are saving to buy a $273,000 house. There are two competing banks in your area, both offering certificates of deposit yielding 6 percent. How long will it take your initial $96,000 investment to reach the desired level at Bank One, which pays simple interest? How long at Bank Two, which compounds interest monthly? a. Bank One years b. Bank Two years 17) Calculating the Number of Periods You have $905 today. You need $4011. If you earn 1.5 percent per month, how many months will you wait? months 18) Calculating Annuity Present Values You want to borrow $25,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $500, but no more. Assuming monthly compounding, what is the highest APR you can afford on a 72 month loan