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Unformatted text preview: FINA3310 Chapter 4 Practice problems Professor: Alexandra K. Theodossiou Fall 20010 1. What is the future value of $15,000, invested today, if it is invested at 7.5% compounded annually for five years? Solution FV = PV(1+ r) n =$15,000(1+0.075) 5 = $21,534.44 Business calculator: 2 nd CLR TVM; 15000 PV; 0 PMT; 7.5 I/Y; 5 N; CPT FV Scientific calculator: PV=15000; N=10; I=7.5; PMT=0; (go to FV) ALPHA ENTER 2. How much would you have to invest today at 9% compounded annually to have $35,000 available for the purchase of a car five years from now? Solution PV =FV/((1+r) n )= $35,000 / ((1+0.09) 5 )= $22,747.60 Business calculator: 2 nd CLR TVM; 35000 FV; 0 PMT; 9 I/Y; 5 N; CPT FV Scientific calculator: FV=35000; N=5; I=9; PMT=0; (go to PV) ALPHA ENTER 3. Your grandfather placed $5,000 in a trust fund for you. In 12 years the fund will be worth $10,000. What is the rate of return on the trust fund? Solution r = (FV/PV) (1/n)1=($10,000 / 5,000) ( 1/12)  1 = 5.95% Business calculator: 2 nd CLR TVM; 5000 PV; 0 PMT; 10000 FV; 12 N; CPT I/Y; Scientific calculator: PV=5000; FV=10000; N=12; PMT=0; (go to I) ALPHA ENTER 4. You need $3,000 to buy a new stereo for your car. If you have $1,200 to invest at 6% compounded annually, how long will you have to wait to buy the stereo? Solution n = ln(FV/PV)/ln(1+r)=ln($3,000 / 1,200) / ln (1+0.06) = 15.73 years Business calculator: 2 nd CLR TVM; 5000 PV; 0 PMT; 10000 FV; 12 N; CPT I/Y; Scientific calculator: PV=5000; FV=10000; N=12; PMT=0; (go to I) ALPHA ENTER...
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This note was uploaded on 06/02/2011 for the course FINA 3310 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.
 Spring '08
 STAFF
 Future Value

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