1. What is the future value in SEVEN years if you receive $300 in two years and $500 at the end of five years? Assume an annual compound rate of 8.5%.

2. What is the value of $2000after one year, if bank compounding half yearly and offered rate is 10%?

Year Future value Interest Effective rate

2,100 100 5%

1 2,205 205 10.25%

Compound interest method(1) FV=PV(1+rk)nkr: nominal rate(2) FV=PV(1+R)nR: effective ratek: compounded times a yearCompound interest method(1) FV=PV(1+rk)nkr: nominal rate(2) FV=PV(1+R)nR: effective ratek: compounded times a year

3. What is the value of $2000 after one year if bank compounding quarterly and offered rate is 10%?

No. Year Future value Interest Effective rate

1 2,050 50 2.5%

2 2,101.25 101.25 5.0625%

3 2,153.78 153.78 7.6891%

4 1 2,207.63 207.63 10.3813%

4. What is the value of $2000after one year if bank compounding monthly and offered rate is 10%?

No. Year Future value Interest Effective rate

1 2,016.67 16.67 0.8333%

2 2,033.47 33.47 1.6736%

3 2,050.42 50.42 2.5209%

4 2,067.5 67.5 3.3752%

5 2,084.73 84.73 4.2367%

6 2,102.11 102.11 5.1053%

7 2,119.62 119.62 5.9812%

8 2,137.29 137.29 6.8644%

9 2,155.1 155.1 7.7549%

10 2,173.06 173.06 8.6529%

11 2,191.17 191.17 9.5583%

12 1 2,209.43 209.43 10.4713%

5. What is the present value of $700 to be received in two equal installments ($350 each), two years and five years from today, when the annual discount rate is 10%?

6. Suppose Capitol Federal Bancorp offers a certificate of deposit that pays $10,000 in five years for exchange for $8,000 today. What interest rate is Capitol Federal Bancorp offering?

7. Suppose Bank One offers a certificate of deposit that pays $5,000 in four years for exchange for $4,000 today. What interest rate is Bank One offering?