# vv-17 - COMPOUNDING b 1. The process of accumulating...

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COMPOUNDING b 1. The process of accumulating interest on an investment over time to earn more interest is called: a. growth. b. compounding. c. aggregation. d. accumulation. e. discounting. PRESENT VALUE AND DISCOUNT RATE c 2. As the discount rate increases, the present value of \$500 to be received six years from now: a. remains constant. b. also increases. c. decreases. d. becomes negative. e. will vary but the direction of the change is unknown. FUTURE VALUE d 3. What is the future value of \$2,896 invested for twelve years at 6.5 percent compounded annually? a. \$5,827.32 b. \$6,023.44 c. \$6,049.45 d. \$6,165.86 e. \$6,218.03 Future value = \$2,896 × (1 + .065) 12 = \$6,165.86 Enter 12 6.5 -2,896 N I/Y PV PMT FV Solve for 6,165.86 PRESENT VALUE b 4. Your grandmother invested one lump sum 17 years ago at 4.25 percent interest. Today, she gave you the proceeds of that investment which totaled \$5,539.92. How much did your grandmother originally invest? a. \$2,700.00 b. \$2,730.30 c. \$2,750.00 d. \$2,768.40 e. \$2,774.90 Present value = \$5,539.92 × [1 ÷ (1 + .0425) 17 ] = \$2,730.30 Enter 17 4.25 5,539.92 N I/Y PV PMT FV Solve for -2,730.30

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INTEREST RATE FOR MULTIPLE PERIODS d 5. Forty years ago, your father invested \$2,500. Today that investment is worth \$107,921. What is the average rate of return your father earned on his investment? a. 8.50 percent b. 9.33 percent c. 9.50 percent d. 9.87 percent e. 9.99 percent \$107,921 = \$2,500 × (1 + r) 40 ; r = 9.87 percent Enter 40 -2,500 107,921 N I/Y PV PMT FV Solve for 9.87 PRESENT VALUE AND RATE CHANGES a 6. You want to have \$10,000 saved ten years from now. How much less do you have to
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## This note was uploaded on 04/07/2011 for the course BUS M 301 taught by Professor Jimbrau during the Winter '11 term at BYU.

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vv-17 - COMPOUNDING b 1. The process of accumulating...

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