You wish to accumulate $40,000 in 18 years in order to send your first child (who was just born) to college. If you deposit $10,000 today into a 529 plan (no taxes), how much annual interest do you need to earn in order to reach your goal? If the same interest rate, but paid semi-annually, is earned, how much less do you need to deposit in period 0?
| Starting next year, you will need $12,000 annually for the next 4 years to complete your child's education. (One year from today you will withdraw the first $12,000). You wish to deposit enough money in a savings account earning 5% interest, compounded annually, in order to make all four payments. How much do you need to deposit? You can solve this as four individual lump sum cash flows. $282.60 |
Flag this Question Question 91pts You are given the option of taking $125 today, or $190.00 exactly five years from today. If the implied interest rate on this financial instrument is 8.5%, compounded semi-annually, which option would you accept? Remember, you are a rational financial investor and every penny counts.
| No difference, I would accept either |
| Accept the $190 exactly five years from today |
Flag this Question Question 101pts Grandma deposits $2100 into an account earning 6.25% interest, annually. After exactly 6 years, the bank offers her the option of moving the money into an account earning 7.1%, semi-annually, IF she will make identical deposits every period. She does this for 5 years, after which the bank suspends the offer, and Grandma returns the money to an account earning 5.5%, compounded annually. At the end of the 20th year, Grandma has $16,452.81 in the account. How much were her annuity deposits (for years 7 - 11; remember she made deposits every 6 months, so there were 10 deposits)?
| The answer cannot be determined from the information provided |
You've just graduated from the FSB and naturally you want to purchase a new BMW. The car costs $42,000. The bank quotes an interest rate of 11% APR for a 72-month loan with a 10% down payment. What is your Effective Annual Rate on this loan?
