# hw6 - ORIE 350 Homework#6 Due Time Value of Money 1 Alex...

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ORIE 350 Homework #6 Due October 12, 2006 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 \$5,000 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 \$5,000 deposit earns interest for 36 months. The interest rate per month is 0.04/12 = 0.003333. ( 29 ( 29 ( 29 35 . 368 , 17 \$ 003333 . 1 000 , 5 003333 . 1 000 , 10 1 36 48 = + = + = n i PV FV 3. An investment pays you 15 annual payments of \$20,000, with the first payment occurring 11 years from now. Recall that the compounding frequency equals the payment frequency unless explicitly stated otherwise.

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