Exploring Simple Interest In the case of simple interest, the interest payment is exactly the same each period. If you deposit $100 in an account that earns 7% simple interest annually, this account will grow by $70 each year. The amount of interest does not increase or decrease, but stays at $70. So the future value of the account is the starting value plus all of the $70 interest payments. More generally, the formula is: FV = PV + (PV *i*n) where i is a decimal (for example 7% is 0.07) Now you practice... What is the future value of an account that begins with $1,019 and pays 5% annually for 20 years? QUESTION 5 Practice Drawing Timelines! Purpose: This section describes how to draw a timeline and visualizing the problem being presented. It is important because a time problem that is set up incorrectly will lead to incorrect answers. Task: Read Section 5-1 in the textbook. For all of the descriptions below, draw the timeline on your own. Upload a Microsoft Word Document with your timeline or an inserted picture of your timeline. Criteria: Full points will be based on completion of the task. No partial credit for this question. Your work should be original and not copied, borrowed, or obtained from another student (this would be cheating as defined by Texas Tech University and stated in the syllabus) 1. You currently have $2,000 in a 3-year certificate of deposit (CD) that pays a guaranteed 4% annually 2. Suppose a U.S. government bond promises to pay $2,249.73 three years from now. 3. The U.S. Treasury offers to sell you a bond for $585.43. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $1.000. Exploring Simple Interest In the case of simple interest, the interest payment is exactly the same each period. If you deposit $100 in an account that earns 7% simple interest annually, this account will grow by $70 each year. The amount of interest does not increase or decrease, but stays at $70. So the future value of the account is the starting value plus all of the $70 interest payments. More generally, the formula is: FV = PV + (PV *i*n) where i is a decimal (for example 7% is 0.07) Now you practice... What is the future value of an account that begins with $1,019 and pays 5% annually for 20 years? QUESTION 5 Practice Drawing Timelines! Purpose: This section describes how to draw a timeline and visualizing the problem being presented. It is important because a time problem that is set up incorrectly will lead to incorrect answers. Task: Read Section 5-1 in the textbook. For all of the descriptions below, draw the timeline on your own. Upload a Microsoft Word Document with your timeline or an inserted picture of your timeline. Criteria: Full points will be based on completion of the task. No partial credit for this question. Your work should be original and not copied, borrowed, or obtained from another student (this would be cheating as defined by Texas Tech University and stated in the syllabus) 1. You currently have $2,000 in a 3-year certificate of deposit (CD) that pays a guaranteed 4% annually 2. Suppose a U.S. government bond promises to pay $2,249.73 three years from now. 3. The U.S. Treasury offers to sell you a bond for $585.43. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $1.000
