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Unformatted text preview: 41Quick Quiz: Part 2What is the relationship between present value and future value? Suppose you need $15,000 in 3 years. If you can earn 6% annually, how much do you need to invest today?If you could invest the money at 8%, would you have to invest more or less than at 6%? How much?Chapter 04: Extra Questions42Quick Quiz 2 SolutionYou need $15,000 in 3 years. You can earn 6% annually, how much do you need to invest today? 3,6 15000 0 /%.12594.29PV= 15000/(1.06)3= 15000/(1.191016) == 15000 x 0.83962) = 12594.29=PV(.06, 3, 0, 15000) Chapter 04: Extra Questions43Quick Quiz: Part 3What are some situations in which you might want to compute the implied interest rate?Suppose you are offered the following investment choices:You can invest $500 today and receive $600 in 5 years. The investment is considered low risk.You can invest the $500 in a bank account paying 4% annually.What is the implied interest rate for the first choice and which investment should you choose? Chapter 04: Extra Questions44Quick Quiz 3 SolutionInvestment choices:Invest $500 today and receive $600 in 5 years. The investment is considered low risk.Invest the $500 in a bank account paying 4% annually.What is the implied interest rate for the first choice and which investment should you choose? 5,500 S.0 /600 0 %3.714%r = (600/500)1/5 1 = 3.714%=RATE(5, 0, 500, 600) The bank account pays a higher rate.Chapter 04: Extra Questions45Quick Quiz: Part 4When might you want to compute the number of periods?...
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This note was uploaded on 11/04/2011 for the course FIN 101 taught by Professor Staff during the Fall '11 term at Texas State.
 Fall '11
 staff
 Future Value

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