Assignment #5

# Assignment #5 - GEORGIA SOUTHERN UNIVERSITY Department of...

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GEORGIA SOUTHERN UNIVERSITY Department of Finance & Economics FINC 3131 – Spring 2017 Prof. John Barkoulas Assignment #5 Directions: Provide answers on a (brown or green) scantron. Due date: Thursday, February 23, 2017 (beginning of class). No late assignments will be accepted. 1) An investor invested \$1,000 35 years ago in Berkshire Hathaway, Warren Buffett’s company. Warren was able to earn an average annual return of 24% over these years. What would the value of that investor’s investment be today? Assume annual compounding. A) \$35,000 B) \$509,890 C) \$1,861,054 D) \$10,789,602 1

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2) When you were born, your parents opened an investment account in your name and deposited \$2,000 into the account. The account has earned an average annual rate of return of 8 percent. Today, the account is valued at \$21,735.34. How old are you? 3) You are to receive \$50,000 10.25 years from now. If the quoted annual rate (APR) is 9.25%, what is the present value of that amount assuming continuous compounding? 4) In 1958 the average tuition for one year at an Ivy League school was \$1,800. Thirty years later, in 1988, the average cost was \$13,700. What was the growth rate in tuition over the 30- year period? 5) You have the opportunity to buy a perpetuity which pays \$1,000 annually. Your required rate of return on this investment is 15 percent. The present value of the perpetuity is a. \$5,000.00 b. \$6,000.00 c. \$6,666.67 d. \$7,500.00 e. \$8,728.50 2
6) You have \$2,000 invested in a bank account that pays a 4 percent nominal annual interest with daily compounding. How much money will you have in the account at the end of July (i.e., in 132 days)? (Assume there are 365 days in each year.)

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