LO3 LO 2 LO 1 16. Calculating Rates of Return Refer back to the Series EE savings bonds we discussed at the very beginning of the chapter. a. Assuming you purchased a $50 face value bond, what rate of return would you earn if you held the bond for 20 years until it doubled in value? b. If you purchased a $50 face value bond in early 2018 at the then-current interest rate of 10 percent per year, how much would the bond be worth in 2028? c. In 2028, instead of cashing the bond in for its then-current value, you decide to hold the bond until it doubles in face value in 2038. What rate of return will you earn over the last 10 years? 17. Calculating Present Values Suppose you are still committed to owning a $175,000 Ferrari (see Question 9). If you believe your mutual fund can achieve an annual return of 11.2 percent, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today? 18. Calculating Future Values You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn an annual rate of return of 10.2 percent and make no additional contributions, what will your account be worth when you retire in 45 years? What if you wait 10 years before contributing? (Does this suggest an investment strategy?) 19. Calculating Future Values You are scheduled to receive $10,000 in two years. When you receive it, you will invest it for six more years at 7.5 percent per year. How much will you have in eight years? 20. Calculating the Number of Periods You expect to receive $30,000 at graduation in two years. You plan on investing it at 7 percent until you have $125,000. How long will you wait from now? (Better than the situation in Question 9, but still no Ferrari.) 21. Calculating Future Values You have $5,800 to deposit: Regency Bank offers 12 percent per year compounded monthly (1 percent per month). while King Bank offers 12 percent but will only compound annually. How much will your investment be worth in 20 years at each bank? LO1 LO4 LO 1