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Lecture 2- Ch.4 In class problems

Lecture 2- Ch.4 In class problems - Lecture 2 Ch.4 In-class...

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Lecture 2 – Ch.4 In-class Problems 1. How much interest is earned in the fifth year on a $1,000 deposit that earns 8% interest compounded annually? 2A. What is the present value of your trust fund if it promises to pay you $50,000 on your 30 th birthday (& years from today) if the account earns 10% compounded annually? 2B. You are offered an investment opportunity with the “guarantee” that your investment will double in 5 years. Assuming annual compounding, what annual rate of return would this investment provide? 3. A cash-strapped young man offers to buy your car with four, equal end-of-year payments of $3,000, beginning three years from today. Assuming that you are indifferent to cash versus credit, that you can invest at 10% annually, and that you want to receive $8,000 for the car, should you accept his offer?
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