Questions and Problems: 1. Simple Interest versus Compound Interest [LO1] First City Bank pays 9 percent simple interest on its savings account balances, whereas Second City Bank pays 9 percent interest compounded annually. If you made a deposit of $7,500 in each bank, how much more money would you earn from your Second City Bank account at the end of eight years? 2. Calculating Future Values (LO1] For each of the following compute the future value Present Value Interest Years Future Value Rate $ 2,328 11 1396 tional 7.513 7 9% 74.381 14 12% 192,050 16 696 3. Calculating Present Values (LO2] For each of the following compute the present value: Present Value Years Interest Rate Future Value 13 946 $ 16,832 4 7% 48,310 29 13% 886,073 40 2196 550.164 4. Calculating Interest Rates [LO3] Solve for the unknown interest rate in each of the following: Present Value Years Interest Rate Future Value $ 181 5 $317 335 17 1,080 48,000 13 185,382 40,353 30 531,618 5. Calculating the Number of Periods [LO4] Solve for the unknown number of years in each of the following: Present Value Years Interest Rate Future Value $ 560 7% $ 1,389 810 8% 1,821 18,400 9% 289,715 21,500 1196 430,258 6. Calculating Interest Rates [LO3] Assume the total cost of a college education will be $345.000 when your child enters college in 18 years. You presently have $73,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child's college education? 7. Calculating the Number of Periods [LO4] At 6.1 percent interest, how long does it take to double your money? To quadruple it? 8. Calculating Interest Rates [LO3] According to the Census Bureau, in October 2016, the average house price in the United States was $354.900. In October 2000, the average price was $215.100. What was the annual increase in the price of the average house sold? 9. Calculating Present Values (LO2] You have just received notification that you have won the $2 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 80 years from now. What is the present value of your windfall if the appropriate discount rate is 8.4 percent? 10. Calculating Interest Rates and Future Values (L01.31 in 1895. the first US Open Golf Championship was held. The winner's prize money was $150. In 2016, the winner's check was $1.000.000. What was the percentage Increase per year in the winner's check over this period? If the winner's prize Incremes at the same rate, what will it be in 2040 11. Calculating Present Values (LO2 Suppose you are committed to owning a $245.000 Ferrari. If you believe your mutual fund can achieve an annual rate of retum of 11.2 percent and you want to buy the car in 9 years on the day you turn 301. how much must you invest today
