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Review Ch. 5_1 - Chapter 5 Review 1 At an inflation rate of...

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Chapter 5 Review 1. At an inflation rate of 9%, the purchasing power of $1 would be cut in half in just over 8 years. How long, to the nearest year, would it take for the purchasing power of $1 to be cut in half if the inflation rate were only 4%? a. 12 years b. 15 years c. 18 years d. 20 years e. 23 years 2. 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? a. 40% b. 100% c. 14.87% d. 20% e. 18.74% 2. You have just made your first $3,000 contribution to your retirement account. Assuming you earn 8% rate of return and make no additional contributions, how much will your account be worth when you retire in 45 years? How much will be worth if you want 10 years before retiring? 3. A firm offered some securities for sale to the public on March 28, 2008. Under the terms of the deal, the firm promised to repay the owner of one of these securities $100,000 on March 28, 2038, but investors would receive nothing until then.
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