Week 2 – Assignment 1
Chapter 3 Questions and Problems
You will find examples for some of these problems at the end
of Chapter 3 to use as a guide. Additional examples can be found on the Week 2
Power Point. Please show your work on all problems.
1.
Assume that you deposit $5,000 in an account
earning 6% simple interest for 3 years. Show your work.
What is the accumulated interest at the end
of 3rd year?___________________
What is the present value?________________________
What is the future
value?_________________________
2.
Assume that you deposit $5,000 in an account
earning 6% compound interest for 3 years. Please solve without using tables.
Show your work.
What is the accumulated interest at the end
of 3rd year?____________________
What is the present
value?________________________
What is the future
value?_________________________
3.
How large will a deposit of $15,000 today become
at a compound interest rate of 5% for 7 years. Use Table A.1 to solve. Show your
work.
4.
How large of a deposit do you need to make today
if you need it to grow to $20,000 in 10 years at a discount rate of 4%? Use
Table A.2 to solve. Show your work.
5. The
current production target for the 6-year plan of XYZ Company is to increase output
by 7 percent per year. If the 2000 production is 2.76 million tons, what is the
target production for 2006? Use Table A.1 to solve. Show your work.
6.
Use the “Rule of 72” to estimate your answer and
then use Table A.1 in the textbook to answer the following :
At a growth rate of 5 percent, how long does it take
a sum to double?
Answers: Rule
of 72_________________
Table A.1 _________________
Explain your answers. How accurate was your answer using
the Rule of 72? How could this estimating tool be used in business and in your
everyday life?
7. If,
at age 35, you open an IRA account paying 6 percent annual interest and you put
$2,000 in at the end of each year, what will your balance be at age 65? Use
Table A.3 to solve. Show your work.
8. You
are offered two alternatives: a $2,000 annuity for 10 years or a lump sum
today. If current interest rates are 6 percent, how large will the lump sum
have to be to make you indifferent between the alternatives? Use Table A.4 to
solve. Show your work.
9. You
have a $10,000 CD at the bank. The interest rate is 3% compounded quarterly for
1 year. What is the Effective Annual Rate (EAR)? Show your work.
10. You
have a $10,000 CD at the bank. The interest rate is 3% compounded semi-annually
for 1 year. What is the Effective Annual Rate (EAR)? Show your work.
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