PV and FV of $1
Mordica Company will receive $400,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $400,000 receipt is
a. $204,000.
b. $205,264.
c. $604,000.
d. $779,488.
b. $205,264.
Barkley Company will receive $800,000 in a future year. If the future receipt is discounted at an interest rate of 8%, its present value is $504,136. In how many years will the $800,000 be received?
a. 5 years
b. 6 years
c. 7 years
d. 8 years
b. 6 years
Your inputs are: N=36, I%=5, PV=-1000, PMT=0, P/Y=12, C/Y=12.
Considering the options, you would solve for this.
What is FV? ($1,161.47)
The Johannsens know they will be needing to replace the roof on their home soon. If the estimated cost to replace the roof is $25,000 and they can save $3,600 at the end of each year, how long will it take them to save up enough to replace the roof assuming they can earn 6% on their savings?
a. 5 years
b. 2 years
c. 8 years
d. 6 years
d. 6 years
This type of interest is calculated only on the initial amount.
What is simple interest?
Nate is planning to invest his $5,000 graduation gift from his parents. The account he is looking at earns a 10% annual return with interest compounding quarterly. What amount will Nate have in the account after 5 years?
a. $8,052.55.
b. $6,444.50.
c. $7,500.00.
d. $8,193.10.
d. $8,193.10.
Dunston Company will receive $500,000 in a future year. If the money great at an interest rate of 10%, its present value is $256,580. In how many years is the $500,000 received?
a. 5 years
b. 6 years
c. 7 years
d. 8 years
c. 7 years
Lucy and Fred want to begin saving for their child's college education. They estimate that they will need $200,000 in eighteen years. If they can earn 6% per year, how much must be deposited at the beginning of each of the next eighteen years to fund the education?
a. $6,470
b. $6,105
c. $11,110
d. $5,924
b. $6,105
PV = $242,980
PMT = $75,000
n = 4
What is the interest rate?
9%
For long-term investments, this type of interest will almost always give a higher return
What Is Compound Interest
Jamaal wants to have $5,0080,000 when he retires in 30 years. Assuming he can earn a 10% annual return, what does he need to invest today?
$286,550.
An uncle asks to borrow $1,000 today and promises to repay you $1,300 two years from now. What annual interest rate would you be agreeing to?
14%
Lucy and Fred want to begin saving for their child's college education. They estimate that they will need $120,000 in eighteen years. If they can earn 5% per annum, how much must be deposited at the end of each of the next eighteen years to fund the education?
$4,266
You win a small lottery prize that promises to pay you $100,000 10 years from now. If you could invest the money at 8% compounded annually, what would the value of the prize be in today's dollars? HINT: Present Value Problem
$46,319.35
You lend a friend $100 and they agree to pay you back the $100 plus an extra $5 in interest at the end of each month. If they don't, they owe you another $5 on top of the original $100. What type of interest is this?
Simple Interest
Altman Company invests $900,000 today. The investment will earn 6% for 5 years, with no funds withdrawn. In five years, the amount in the investment fund is...
$1,204,407.
PV = $44,421
FV = $80,000
n = 15
What is the annual interest rate?
4%
$1000 is invested at 6% compounded annually for 2 years. Calculate the future value.
What is $1123.60?
Explanation:
PV = 1,000
r = 0.06.
t =2
n = 1 (compounded annually)
---
FV = 1000 x (1 + 6 / (100))^(2)
FV = 1000 x (1.06)^2
FV = 1000 x 1.1236
FV = 1123.60
Sarah invests $2,000 (C) in a savings account that offers a simple interest rate of 3% per year (r). If she leaves the money in the account for 4 years (n), how much interest (I) will she earn?
$240 in interest after 4 years.
Explanation:
I = 2,000 x 0.03 x 4 = 60 x 4 = 240.
I = Interest earned
C = Principal amount = $2,000
r = Annual interest rate = 3% = 0.03 (Remember to convert the percentage to a decimal)
n = Number of years (period) = 4 years
You put $100 in a savings account. After year 1, you have $105, after two years you have $110.25. This type of interest is being used.
What Is Compound Interest?
Simple interest would earn $5 each year (5% of the original $100). So after 2 years, you'd have $100 + $5 + $5 = $110, and a total interest of $10.
With compound interest, you earned a total of $110.25 - $100 = $10.25 in interest.
A parent wants to set aside money today for their child’s college tuition. They estimate they’ll need $50,000 in 15 years. If the account earns an annual return of 6% compounded annually, what deposit will need to made today to make sure they have what they need in 15 years?
$20,857.16
If a car loan is $10,000 at 5% for 5 years, what is the MONTHLY payment? HINT: SOLVE FOR PMT & YOUR FV is 0 (because the loan will be paid off in 5 years)
$188.71
What is the Future Value of $500 savings account contributions that you make EVERY YEAR for 10 years at 7%?
$6,908.07
You invest an initial amount of $2000 (PV) for 5 years (n). The investment earns a nominal annual interest rate of 4% (r), and the interest is compounded semi-annually (meaning the number of compounding periods per year, n, is 2). How much interest is earned?
What is $437.99
FV = 2000 x (1 + 4 / (100 x 2))^(2 x 5)
FV = 2000 x (1 + 4 / 200)^(10)
FV = 2000 x (1.02)^10
(1.02)^10 ≈ 1.2189..
FV = 2000 x 1.2189..
FV ≈ 2437.9888...
FV ≈ $2437.99 (rounded to two decimal places)
Interest = FV - PV = $2437.99 - $2000 = $437.99
You are evaluating two long-term investment options for a principal amount, 100, over a 10-year period.
Option A: Offers a 4.5% simple annual interest rate.
Option B: Offers a nominal annual interest rate of 4.2% (r), but this interest is compounded quarterly (n=4).
You are evaluating two long-term investment options for a principal amount, 100, over a 10-year period.
Option A: Offers a 4.5% simple annual interest rate.
Option B: Offers a nominal annual interest rate of 4.2% (r), but this interest is compounded quarterly (k=4).