1. WHAT IS THE FUTURE VALUE OF AN INITIAL $100 AFTER 3 YEARS IF IT IS INVESTED I
ID: 2666121 • Letter: 1
Question
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
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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
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100 100 100
14 WHAT IS THE PV OF THE SAME STREAM
Explanation / Answer
1) 100(1.01)^3=103.0301 2) X(1.01)^3=100 X=97.059015 3) (1.02)^x=2 then x=35.00278878 4) 60*(1-0.02)^20=40.05678 5)add them up then get PV: 624.6372239 6) 100(1+x)^3=125.97 interest 7.99% 7) this is an anuity immediate, there is a formula for it but I don't remeber it :( I'm sorry 11) definately the more periods you compound over the more profits you gain as it's interest accumulated over more interest 12)annual: stil 10% semianually: (1+ 0.1/2)=(1+J)^0.5 then j=10.25% and so on 13) 100(1.01)^6+100(1.01)^4+100(1.01)^2=312.2224161 PV= 294.127
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