Question 1

You are to receive a cash flow of $1,500 three years from now. Once received, you will invest the money and earn a 10.5% return. What is the value of the investment in year 5?

A. $2,055

B. $2,471

C. $2,024

D. $2,345

E. $2,275

Question 2

Bank A and Bank B offer the same 5% annual yield on the 10-year CD.

Bank A offers monthly compounding

Bank B offers daily compounding

Assume youre considering investing $5,000 in a CD.

Which of the following is true?

A. Bank Bs CD is preferable since the more frequent compounding means you will have more money at maturity

B. At maturity, the CD for Bank B would be worth $8,243.32

C. All statements are true

D. At maturity, the CD for Bank A would be worth $8,235.05