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BA 3303 Exam 3 Study Guide
if you'd like to have $5,000,000 at retirement in 45 years, and you expect to earn 10% annually, which is around the average return over the past 50 years, what lump sum would you have to invest today? - Answer PV=FV(1+r)^n PV=5,000,000(1+0.10)^ PV=68, how many years will it take to grow the following? a)$500 to grow to $1,039.50 if invested at 5% compounded annually? - Answer FV=PV(1+r)^n 1,039=500(1+0.05)^n n=approx. 15 years b)$35 to grow to $53.87 if invested at 9% compounded annually - Answer FV=PV(1+r)^n 53.87=35(1+0.09)^n n=approx. 5 years c) $100 to grow to $298.60 if invested at 20% compounded annually - Answer FV=PV(1+r)^n 298.60=100(1+0.20)^n n=approx. 6 years d) how many years will it take to grow $53 to $78.76 if invested at 2% compounded annually? - Answer FV=PV(1+r)^n 78.76=53(1+0.02)^n n=approx. 20 years at what annual rate would the following have to be invested? a) $500 to grow to $1,947.99 in 12 years - Answer FV=PV(1+r)^n 1,947.99=500(1+r)^ r=12% b) $300 to grow to $422.13 in 7 years - Answer FV=PV(1+r)^n 422.13=300(1+r)^
r=5% c) $50 to grow to $280.22 in 20 years - Answer FV=PV(1+r)^n 280.22=50(1+r)^ r=9% d) $200 to grow to $497.66 in 5 years - Answer FV=PV(1+r)^n 497.66=200(1+r)^ r=20% stanford Simmons, who recently sold his Porsche, placed $10,000 in a savings account paying annual compound interest of 6%. a) calculate the amount of money that'll have accrued if he leaves the money in the bank for 1, 5, and 15 years. 1 year: - Answer FV=PV(1+r)^n FV=10,000(1+0.06)^ FV=10,600 for 1 year 5 years: - Answer FV=PV(1+r)^n FV=10,000(1+0.06)^ FV=13,382.25 for 5 years 15 years: - Answer FV=PV(1+r)^n FV=10,000(1+0.06)^ FV=23,945.58 for 15 years stanford Simmons, who recently sold his Porsche, placed $10,000 in a savings account paying annual compound interest of 6%. b) if the money was moved to an account that pays 8%. what's the accrued value of $10,000 in the account for 1, 5 and 15 years? 1 year: - Answer FV=PV(1+r)^n FV=10,000(1+0.08)^ FV=10,800 for 1 year for 5 years: - Answer FV=PV(1+r)^n FV=10,000(1+0.08)^
52 years later, in 2015, the price = $54, what annual rate of interest would you have earned if you had bought the comic in 1963 and sold it in 2015? - Answer FV=PV(1+r)^n 54,900=0.14(1+r)^ r=28% $17,000 today (expected to increase 4% annually). paying 7.3% annually to buy car in 7 years. how much will car cost and how much does he have to save today to buy the car in 7 years? a) how much will his car cost after 7 years? - Answer FV=PV(1+r)^n FV=17,000(1+0.073)^ FV=27,838. bob terwillinger received $12,345 for his services as a financial consultant to the mayor's office go his hometown in Springfield. bob said that his consulting work was his civic duty and that he shouldn't receive compensation. so, he's invested his paycheck into an account paying 3.98% interest and left the account in his will, to the city of Springfield on the condition that the city cannot collect any money from the account for 200 years. how much will the city receive from bob's generosity in 200 years? - Answer FV=PV(1+r)^n FV=12,345(1+0.0398)^ FV=30,300,774. Kirk van houten, who's been married for 23 years, would like to buy his wife and expensive diamond ring with a platinum setting on their 30th anniversary. assume that the cost of the ring will be $12,000 in 7 years. Kirk currently has $4,510 to invest. what annual rate of return on his investment to accumulate enough money to pay for the ring?
- Answer FV=PV(1+r)^n 12,000=4,510(1+r)^ r=15% jack asked Jill to marry him, and she accepted under one condition: that he buy her a brand new $330,000 Rolls Royce Phantom. Jack currently has $45,530 that he may invest. he has found a mutual with an expected annual return of 4.5% in which he'll place the money. how long will it take for Jack to win Jill's hand in marriage? - Answer FV=PV(1+r)^n 330,000=45,530(1+0.045)^n n=44.9 years
true or false? the time value of money is the opportunity cost of passing up the earning potential of a dollar today - Answer true true or false? a timeline identifies the timing and amount of a stream of cashflows, along with interest rate it earns. - Answer true true of false? an investment earning simple interest is preferred over an investment earning compound interest because the simplicity adds value - Answer false true or false? Tim invested $1,000 in a mutual fund paying 8% per year. John invested $500 in the same mutual fund. if both Tim and John keep their money invested for the same amount of time, Tim will end up with twice as much money as John - Answer true the present value of a single future sum: - Answer depends on the number of discount periods US Saving Bonds are sold at a discount. the face value of the bond represents its value, on its future maturity date. therefore, the... - Answer current price of a $50 face value bond that matures in 10 years, will be less than the current price of a $50 face value bond that matures in 5 years. the present value of $1,000 to be received in 5 years is ... if the discount rate is 12.78% - Answer FV=PV(1+r)^n 1,000=PV(1+0.1278)^ PV= you decide you want your child to be a millionaire. you have a son today and you deposit $10,000 in an investment account that earns 7% per year. the money in the account will be distributed to your son whenever the total reaches $1,500,000. how old will your son be when he receives the money? - Answer FV=PV(1+r)^n 1,500,000=10,000(1+0.07)^n n=74 years old how much money must be put into a bank account yielding 6.42% in order to have $1,671 at the end of 11 years? - Answer FV=PV(1+r)^n 1,671=PV(1+0.0642)^ PV=$ true or false? Joe borrowed $10,000 at 10% per year and promised to pay it back in equal annual installments at the end of each of the next 5 years. Joe's payment will be $2,100 [9$10,000/5) +(10,000 x 10%)] - Answer false true or false? the present value of an annuity increases as the discount rate increases - Answer false
