1. You need $3,000 to buy a new stereo for your car. If you have $1,100 to inves

Question

1. You need $3,000 to buy a new stereo for your car. If you have $1,100 to invest at 7% compounded annually, how long will you have to wait to buy the stereo?

12.39 years

13.05 years

13.97 years

14.20 years

14.83 years

2. What is the future value of $60,000 received today if it is invested at 7% compounded annually for six years?

$90,043.82

$89,693.39

$84,952.40

$91,235.84

$69,374.89

3. What is the total present value of the following three cash flows: $150 received at the end of year three, $250 received at the end of year four, and $800 received at the end of year eight, if the discount rate is 7%?

$778.78

$825.90

$635.56

$789.89

I think Bermuda right now would be good.

4.

What is the expected return for the following stock?
State         Probability          E(Ri)
Average           .30                 .20
Recession        .20                 -.10
Depression      .50                  .20

.055

.080

.095

.105

.140

5.

You need to borrow $35,000 to buy a new Triple Machiato, Moca, FrappoWapper, Derriere Flapper Coffee Maker

12.39 years

13.05 years

13.97 years

14.20 years

14.83 years

Explanation / Answer

1> 1100(1.07)^n=3000 or 1.07^n=3000/1100 2.73 1.07^(14.83) 2.73 so n=14.83 2> FV=60000*(1.07)^6 90043.82 3> PV=150/(1.07^3)+250/(1.07^4)+800/(1.07^8) 778.78 4> Expected Return=0.3*20+0.2*(-10)+0.5*20 14 Expected Return=0.14 5> Interest per month=8/12 0.667 Interest Factor=(1.00667)^(4*12) 1.376 Capital Recovery=A=P*(i*F)/(F-1)=35000*(0.00667*1.376)/(1.376-1) 854.33

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