E120
Homework 1
Due 01/02/2012
1. Calculate the future value of $2000 in
(a) 5 years at an interest rate of 5% per year.
(b) 10 years at an interest rate of 5% per year.
(c) 5 years at an interest rate of 10% per year.
(d) Why is the amount of interest earned in part (a) less than half the amount of
interest earned in part (b)?
2. What is the present value of $10,000 received
(a) 12 years from today when the interest rate is 4% per year?
(b) 20 years from today when the interest rate is 8% per year?
(c) 6 years from today when the interest rate is 2% per year?
3. Your brother has oﬀered to give you either $5000 today or $10,000 in ten years. If the
interest rate is 7% per year, which option is preferable?
4. Consider the following alternatives:
i. $100 received in one year
ii. $200 received in ﬁve years
iii. $300 received in ten years
a. Rank the alternatives from most valuable to least valuable if the interest rate is
10% per year.
b. What is your ranking if the interest rate is only 5% per year?
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 Spring '08
 ILAN
 $200, $100, $500, $300

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