a 1. WHAT IS THE FUTURE VALUE OF AN INITIAL $100 AFTER 3 YEARS IF IT IS INVESTED

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a
1. WHAT IS THE FUTURE VALUE OF AN INITIAL $100 AFTER 3 YEARS IF IT IS INVESTED IN AN ACCOUNT PAYING 10 PERCENT, ANNUAL COMPOUNDING?


.2 WHAT IS THE PRESENT VALUE OF $100 TO BE RECEIVED IN 3 YEARS IF THE APPROPRIATE INTEREST RATE IS 10 PERCENT, ANNUAL COMPOUNDING?



3 IF A COMPANY’S SALES ARE GROWING AT A RATE OF 20 PERCENT PER YEAR, HOW LONG WILL IT TAKE SALES TO DOUBLE?


4 A FARMER CAN SPEND $60/ACRE TO PLANT PINE TREES ON SOME MARGINAL LAND. THE EXPECTED REAL RATE OF RETURN IS 4 PERCENT, AND THE EXPECTED INFLATION RATE IS
6 PERCENT. WHAT IS THE EXPECTED VALUE OF THE TIMBER AFTER 20 YEARS?





5 WHAT IS THE PRESENT VALUE OF THE FOLLOWING UNEVEN CASH FLOW STREAM? THE APPROPRIATE INTEREST RATE IS 10 PERCENT, COMPOUNDED ANNUALLY.

0 1 2 3 4 YEARS
| | | | |
0 100 300 300 -50




6 WHAT ANNUAL INTEREST RATE WILL CAUSE $100 TO GROW TO $125.97 IN 3 YEARS?



7 A 20-YEAR OLD STUDENT WANTS TO BEGIN SAVING FOR HER RETIREMENT. HER PLAN IS TO SAVE $3 A DAY. EVERY DAY SHE PLACES $3 IN A DRAWER. AT THE END OF EACH YEAR, SHE INVESTS THE ACCUMULATED SAVINGS ($1,095) IN AN ONLINE STOCK ACCOUNT THAT HAS AN EXPECTED ANNUAL RETURN OF 12 PERCENT.

8 IF SHE KEEPS SAVING IN THIS MANNER, HOW MUCH WILL SHE HAVE ACCUMULATED BY AGE 65?

9 IF A 40-YEAR OLD INVESTOR BEGAN SAVING IN THIS MANNER, HOW MUCH WOULD HE HAVE BY AGE 65?



10 HOW MUCH WOULD THE 40-YEAR OLD INVESTOR HAVE TO SAVE EACH YEAR TO ACCUMULATE THE SAME AMOUNT AT AGE 65 AS THE 20-YEAR OLD INVESTOR DESCRIBED ABOVE?


11 WILL THE FUTURE VALUE BE LARGER OR SMALLER IF WE COMPOUND AN INITIAL AMOUNT MORE OFTEN THAN ANNUALLY, FOR EXAMPLE, EVERY 6 MONTHS, OR SEMIANNUALLY, HOLDING THE STATED INTEREST RATE CONSTANT? WHY?


12 WHAT IS THE EFFECTIVE ANNUAL RATE CORRESPONDING TO A NOMINAL RATE OF
10 PERCENT, COMPOUNDED SEMIANNUALLY? COMPOUNDED QUARTERLY? COMPOUNDED DAILY?


13 WHAT IS THE VALUE AT THE END OF YEAR 3 OF THE FOLLOWING CASH FLOW STREAM IF THE QUOTED INTEREST RATE IS 10 PERCENT, COMPOUNDED SEMIANNUALLY?

0 2 4 6 PERIODS
| | | |
100 100 100


14 WHAT IS THE PV OF THE SAME STREAM

Explanation / Answer

Here is the formula for Future Value

FV = C0 * (1+ r)n

C0 = Cash Flow at Period 0

r = rate of return

n = number of periods

FV = PV * (1+R)n

PV = Present Value

r = rate of return

n = number of periods

Hope this helps!!

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