E120_Spring12_HW1 - E120 Homework 1 Due 01/02/2012 1....

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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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This note was uploaded on 04/04/2012 for the course ENGIN 120 taught by Professor Ilan during the Spring '08 term at University of California, Berkeley.

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E120_Spring12_HW1 - E120 Homework 1 Due 01/02/2012 1....

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