Ch 1 class HO

# Ch 1 class HO - Application Suppose you can earn 9 percent...

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5/20/10 Application: Suppose you can earn 9 percent interest. What is a promised payment of \$1,000 five (5) years from now worth to you today? Application: You put \$100,000 into an account with a mutual fund, and expect to earn 9.5 percent per year. What will your balance in this account be 12 years from today?

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5/20/10 Application: Suppose you purchase a Treasury Bond which promises to pay you \$10,000 when it matures 10 years from today. You pay \$5,854.31 for this bond. What is the bond’s annual interest yield, or return on investment?
5/20/10 Application: You deposit \$1,000 into an account which offers an annual interest rate of 5.9 percent. Complete the table below, showing how you would calculate the balance you will have in this account in 20 years under different rates of compounding, and what this balance will be. Compounding Future Value in 20 Years Formula Balance Annual 1000(1+0.059)20 \$3,147.16 Semi-Annual 1000(1+0.059/2)20*2 \$3,199.29 Quarterly 1000(1+0.059/4)20*4 \$3,226.45 Monthly 1000(1+0.059/12)20*12 \$3,244.98 Continuous 1000*e0.059*20 \$3,254.37

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## This note was uploaded on 05/18/2010 for the course ECON 419 taught by Professor Holland during the Summer '10 term at Purdue.

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Ch 1 class HO - Application Suppose you can earn 9 percent...

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