FNAN 301, Spring 2010, quiz 2, solutions
Find future value with simple interest and PMT for FV annuity
1. Four years ago from today, Lindsey invested $6,500 in a security that has earned and is
expected to continue to earn 10.0 percent per year in simple interest and that pays investors in 6
years from today.
Julia wants to have as much money in 6 years from today as Lindsey expects
to have in 6 years from today.
How much would Julia need to contribute to her investment
account each year for 6 years if she has nothing currently saved, makes equal annual
contributions to her investment account, makes her first contribution in 1 year, and can earn 10.0
percent per year in compound interest?
Recall that interest rates are assumed to be compound
rates unless told otherwise (such as with Lindsey’s security), so the vast majority of the analysis
of the time value of money in FNAN 301 involves compound rates.
Therefore, the analysis of
Julia’s account should be conducted in a way that is consistent with similar problems analyzed in
the course.
1. Four years ago from today, Lindsey invested $7,500 in a security that has earned and is
expected to continue to earn 10.0 percent per year in simple interest and that pays investors in 6
years from today.
Julia wants to have as much money in 6 years from today as Lindsey expects
to have in 6 years from today.
How much would Julia need to contribute to her investment
account each year for 6 years if she has nothing currently saved, makes equal annual
contributions to her investment account, makes her first contribution in 1 year, and can earn 10.0
percent per year in compound interest?
Recall that interest rates are assumed to be compound
rates unless told otherwise (such as with Lindsey’s security), so the vast majority of the analysis
of the time value of money in FNAN 301 involves compound rates.
Therefore, the analysis of
Julia’s account should be conducted in a way that is consistent with similar problems analyzed in
the course.
1. Four years ago from today, Lindsey invested $8,500 in a security that has earned and is
expected to continue to earn 10.0 percent per year in simple interest and that pays investors in 6
years from today.
Julia wants to have as much money in 6 years from today as Lindsey expects
to have in 6 years from today.
How much would Julia need to contribute to her investment
account each year for 6 years if she has nothing currently saved, makes equal annual
contributions to her investment account, makes her first contribution in 1 year, and can earn 10.0
percent per year in compound interest?
Recall that interest rates are assumed to be compound
rates unless told otherwise (such as with Lindsey’s security), so the vast majority of the analysis
of the time value of money in FNAN 301 involves compound rates.
Therefore, the analysis of
Julia’s account should be conducted in a way that is consistent with similar problems analyzed in
the course.