This preview shows pages 1–2. Sign up to view the full content.
1) Gerold invested $110 in an account that pays 5 percent simple interest. How much money will he have at the
end of 6 years?
$137.50
$143.00
$148.72
$135.85
$132.00
Ending value = $110 + ($110 x .05 x 6) = $143.00
2) You have just made your first $4,000 contribution to your retirement account. Assuming you
earn an 8 percent rate of return and make no additional contributions.
Required:
(a
)
What will your account be worth when you retire in 40 years?
86,898.09
(b
)
What will your account be worth if you wait 5 years before contributing?
59,141.38
3) You are scheduled to receive $44,000 in two years. When you receive it, you will invest it for
8 more years at 8.0 percent per year. How much will you have in 10 years?
$52,455.63
$94,992.70
$81,440.93
$77,368.88
$85,512.98
We need to find the FV of a lump sum. However, the money will only be invested for 8 years, so
the number of periods is 8.
FV = PV(1 +
r
)
t
FV = $44,000(1.080)
8
= $81,440.93
4) You're trying to save to buy a new $170,000 Ferrari. You have $40,000 today that can be
invested at your bank. The bank pays 5.3 percent annual interest on its accounts. How long will
it be before you have enough to buy the car?
26.02 years
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 11/16/2011 for the course FI 311 taught by Professor Booth during the Fall '06 term at Michigan State University.
 Fall '06
 Booth
 Interest

Click to edit the document details