3530 W2011 - Tutorial 1 Questions
1. The Joshua Co. plans on saving money to buy some new equipment. The company
is opening an account today with a deposit of $15,000 and expects to earn 4% interest
After 3 years, the firm wants to add an additional $50,000 to the account. If the
account continues and earns 4% interest compounded semi-annually after 3 years, how
much money will the Joshua Co. have in their account five years from now?
2. A credit card company sends you a promotion that says it will charge you an interest
rate of 1.25% monthly.
In this case the annual percentage rate (APR) is ____ and the
effective annual rate (EAR) is _______ and if I carried a $300 balance throughout the
year I would owe
_______ at the end of the year.
A) 16.08%; 15.00%; $348.24
B) 15.00%; 14.55%; $345.00
C) 14.55%; 15.00%; $345.00
D) 15.00%; 16.08%; $348.24
3. Prizes are often not “worth” as much as claimed.
Place a value on a prize of
$5,000,000 that is to be received in equal annual payments over the next 20 years, with
the first payment beginning today. Assume an interest rate of 7% over the 20-year
4. Which of the following strategies will allow real retirement spending
approximately equal, assuming savings of $1,000,000 invested at 8% annually, a 25-
year time horizon, and a 4 percent expected annual inflation rate?
A) Spend approximately $63,000 annually.
B) Spend approximately $78,225 annually.