1. John opened an account with Bank A with $6.500 at 6% simple Interest. Steve opened his account with Bank B and deposited $7,500 at 7% interest compounded annually. Calculate the extra amount Steve will earn over a period of thirty years. (Hint: Steve deposited $1,000 more than John initially so please keep that in mind).
2. Your rich uncle has promised that when you graduate two years from now, he will open an investment account for you with $8,000. This account is expected to yield 8.5% interest compounded annually. How long do you have to wait, starting from now, before your balance grows to $50,000? (Hint: your first deposit starts two years from now)
3. Able invested $5,000 in a fund for 35 years This fund gives an annual return on 8 percent per year for first 20 years and then earns 6% for remaining time. How much will this fund grow to at the end of the 35 years?
4. You invested a one-time lump-sum deposit in an account for $60,000. You have set aside this money for college education of your child who will need $425,000 in 18 years, at the time of starting his education. What rate of interest this account must earn so that your deposit will grow to a target amount and you can pay for the college tuition?
5. Using the time value of money function on your calculator, how long will it take for your money to grow four times at 9% annual rate of interest? You may assume any amount to arrive at the same answer.
6. You would need to replace the roof your house 30 years from now at an estimated cost of $25,000. How much should you save today to be able to replace your roof. Your investment account earns 8 percent annual return compounded monthly.
7. The street corner pawn shop agrees to lend $3,000 to you at 0.35% interest per day (compounded daily). You are required to pay back the loan at the end of three years and make no other payments in the interim. If we assume that one year has 365 days, how much will you need to payback at the end of three years?
8. You bought your house six years ago for $250,000. Today you sold the house for $500,000. What is your annualized rate of return?
9. You have loan rate quotations from two banks. Bank XYZ has quoted 10% annual interest rate but compounded on monthly basis. Bank ABC has quoted slightly lower annual rate of 9.85% but compounded on daily basis. Both banks require that the loan should be paid off at the end of five years in one lump-sum payment and that there are no interim payments. Assume any amount and show calculations to support your decision on which bank should you borrow from?
10. Mary has invested her bonus of $28,000 in a mutual fund for a period of six years at an expected annual rate of return of 6.72%. There is another similar investment opportunity in bonds that is likely to earn 7.15% annual return. How much more money Mary could earn by investing in bonds rather that in the mutual fund?