ORIE_350_Homework__7_Answers

ORIE_350_Homework__7_Answers - ORIE 350 Homework#7 Time...

Info icon This preview shows pages 1–3. Sign up to view the full content.

ORIE 350 Homework #7 Time Value of Money 1. Alex Trabeck opens a savings account at CFCU. The advertised APR is 3.45%, compounded monthly. If he deposits $20,000 today, what will the balance be in the account 30 months from now, assuming no other deposits or withdrawals? ( 29 ( 29 002831 . 0 1 0345 . 1 1 1 12 1 1 = - = - + = c APR i ( 29 ( 29 89 . 769 , 21 $ 002831 . 1 000 , 20 1 30 = = + = n i PV FV 2. You have just made a $10,000 deposit to your savings account. Your rich aunt will make an additional deposit of $8,000 to your account one year from now. Assuming you earn an annual nominal interest rate of 4%, compounded monthly, and make no additional contributions, what will your account be worth 4 years from today? The $10,000 deposit earns interest for 48 months; the $8,000 deposit earns interest for 36 months. The interest rate per month is 0.04/12 = 0.003333. ( 29 ( 29 ( 29 n 48 36 FV PV 1 i 10,000 1.003333 8,000 1.003333 $20,750.16 = + = + = 3. An investment pays you 15 annual payments of $40,000, with the first payment occurring 11 years from now. Recall that the compounding frequency equals the payment frequency unless explicitly stated otherwise. a. If the annual nominal interest rate is 7%, then what is the value of the investment today? ( 29 ( 29 n 15 10 1 1 i 1 1.07 PV A 40,000 $364,316.56 i 0.07 - - - + - = = = ( 29 10 0 10 PV PV $185,200.07 1.07 = = b. What is the value of a similar investment, with identical terms except the annuity extends for 20 years, instead of 15 years? ( 29 ( 29 n 20 10 1 1 i 1 1.07 PV A 40,000 $423,760.57 i 0.07 - - - + - = = = ( 29 10 0 10 PV PV $215,418.39 1.07 = =
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

4. Gina Davis deposits $30,000 in an investment account earning an annual, nominal rate of 5.2%. Interest is compounded monthly. How long will Gina have to wait if he wants
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern