Do 3-26

3-23

3-34

An inheritance will be $20,000. The interest rate for the time value of money is 6%. How much is the inheritance worth now, if it will be received in 5 years? in 10 years? in 20 years? in 50 years? Rita borrows $5000 from her parents. She repays them $6000. What is the interest rate if she pays the $6000 at the end of Year 2? Year 3? Year 5? Year 10? A savings account earns 8% interest. If $1000 is invested, how many years is it until each of the following amounts is on deposit? $1360 $2720 $4316 $6848 3-22 to 3-24 Contributed by Paul R. McCright, University of South Florida Alvin's Uncle Arnold gave him $16,000 from selling the old family farm. Alvin wants to start college and have $12,000 available to buy a used car when he graduates in 4 years. Alvin earns 2% in his savings account. How much can he spend on a motorcycle now and still have enough to grow to the $12,000 he needs when he graduates? Ace Manufacturing is building a new facility that will cost $44M. Ace will borrow $40M from First National Bank and pay the remainder immediately. as a down payment. Ace will pay 7% interest but will make no payments for 4 years, at which time the entire amount will be due. How large will Ace's payment be? Mohammed can get a certificate of deposit (CD) at his bank that will pay 2.4% annually for 10 years If he places $5530 in this CD, how much will it be worth when it matures? Use the formula. Use the interest tables and interpolation. Use a calculator or spreadsheet for a 5-button solution. How much must you invest now at 7.9% interest to accumulate $175,000 in 37 years? In 1995 anonymous private collector purchased a painting by Picasso entitled Angel Fernandez de Soto for $29, 152,000. The picture depicts Picasso's friend de Soto seated in a Barcelona cafe drinking absinthe. The painting was done in 1903 and was valued then at $600. If the painting was owned by the same family until its sale in 1995, what rate of return did they receive on the $600 investment? In 1990 Mrs. John Hay Whitney sold her painting by Renoir, Au Moulin de la Galette, depicting an open-air Parisian dance hall, for $71 million. The buyer also had to pay the auction house commission of 10%, or a total of $78.1 million. The Whitney family had purchased the painting in 1929 for $165,000. What rate of return did Mrs. Whitney receive the investment? Was the rate of return really as high as you computed in (a)? Explain. The local bank pays 4% interest on savings deposits, In a nearby town, the bank pays 1% per quarter. A man who has $3000 to deposit wonders whether the higher interest paid in the nearby town justifies driving there. If all money is left in the account for 2 years, how much interest would he obtain from the out-of-town bank? One thousand dollars is borrowed for one year at an interest rate of 1% per month. If the same sum of money could be borrowed for the same period at an interest rate of 12% per year, how much could be saved in interest charges? A sum of money invested at 2% per 6-month period (semiannually) will double in amount in approximately how many years? The tabulated factors stop at n = 100. How can they be used to calculate (P/F, i, 150)? (P/F, i, 200)? If lottery winnings of Q are invested now at an interest rate of 9%, how much is available to help fund an early retirement in year 25? A firm paid $160,000 for a building site two years ago. It is now worth $200,000, and the firm's plans have changed so that no building is planned. The firm estimates that the land will be worth $240,000 in four years. If the firm's interest rate is 5%, what should it do? What is the present worth of a two-part legal settlement if the interest rate is 4%? $100,000 is received at the end of year 1, and $400,000 at the end of year 5