Exercise 2 Answers - ACE 240 Exercise 2 Financial Math...

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Exercise 2: Financial Math, Financial Diagnostics, & Taxes Instructions: Each question is worth 1 point except as indicated. For calculation questions, show your logic. Turn in typed answers or spreadsheets. 1. If you put $30,000 into a CD paying 5%/yr compounded annually, what would the account value be in 5 years? FV[5%,5,0,-30000] = $38,288.45 2. If your Grandma promises $10,000 in 10 years, and the prevailing interest rate is 6%/yr compounded monthly, what is the present value of her promised gift? PV[6%/12,10*12,0,-10000,0] = $5,496.33 3. Bob Dylan wanted a backup plan if his music career faltered, so he invested $50,000 in a bond 30 years ago. The bond promised interest of 3%/yr with compounding monthly. How much does Bob’s account contain today? FV[3%/12,30*12,0,-50000,0] = $122,842.11 4. [2 points] Piggy Bank is offering 3-year certificates of deposit paying interest of 5%/yr compounded annually. The rate of inflation is 2.1%/yr. If inflation continues at that rate, what would be the real value of $10,000 placed in a CD at the end of 3 years? FV[2.84%,3,0,-10000,0] = $10,876.43 (Note: 1.05/1.021= 1.0284) 5. Say your wealthy Grandpa promises to deposit $10,000 into an account for you each year for 5 years starting at graduation. If the account pays 4%/yr compounded annually, what is the nominal value of his gift at the end of the 5th year? FV[4%,5,-10000,0,1] = $56,329.75 6. J.D.’s goal is to accumulate $2,500,000 in his retirement fund by the end of 20 years. The fund currently contains $150,000. Jack’s calculation is based on an 8% expected annual rate of return with quarterly compounding. How much should he deposit at the beginning of each quarter to achieve his goal? PMT[8%/4,20*4,-150000,2500000,1] = $8,948.68 7. [2 points] Mary figures she can afford to save $275 monthly toward a down payment for a home. She would like to accumulate at least $25,000 by the end of 5 years. Assuming her savings are deposited at the beginning of each month, what monthly rate of interest will she need to earn to achieve her goal? Is this a plausible plan? 1
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This note was uploaded on 08/26/2009 for the course ACE 240 taught by Professor Neelakantan during the Spring '09 term at University of Illinois at Urbana–Champaign.

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Exercise 2 Answers - ACE 240 Exercise 2 Financial Math...

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