PLEASE SHOW CALCULATIONS AND FORMULA USED PLEASE SHOW CALCULATIONS AND FORMULA U
ID: 2809205 • Letter: P
Question
PLEASE SHOW CALCULATIONS AND FORMULA USED
PLEASE SHOW CALCULATIONS AND FORMULA USED
15) Which of the following will result in a future value of greater than $100? a) b) c) d) PV-$50, r-an annual interest rate of 10%, and n 8 years. PV-$75, r-an annual interest rate of 12%, and n-3 years. PV = $90, r-an annual interest rate of 14%, and n-1 years. All the future values are greater than $100 16) A home improvement firm has quoted a price of S9800 to fix up John's backyard. Five years ago John put $7500 into a home improvement account that has earned an average of 5.25% per year. Does John have enough money in his account to pay for the backyard fix-up? a) Yes. John now has exactly S9800 in his home improvement account. b) No. John has only $9687 in his home improvement account. c) Yes. John now has S10519 in his home improvement account. There is not enough information to answer this question. 17) You have purchased a savings bond that will pay $10,000 to your newborn child in fifteen years. If the bank discounts this bond at a rate of 3.875% per year, what is today's price (the present value) for this bond? a) $8417 b) $8500 c) $5654 d) $10000 18) To determine the present value of a future amount, one should the future cash flows a) Annuitize b) Compound c) Discount d) MultiplyExplanation / Answer
15)
Future value = Present value ( 1 + r)n
Future value = 50 * ( 1 + 0.1)8
Future value = 50 * 2.143589 = $107.18
Future value = 75 * ( 1 + 0.12)3
Future value = 75 * 1.404928 = $105.37
Future value = 90 * ( 1 + 0.14)1
Future value = 90 * 1.14 = $102.6
d) All the future values are greater than $100
16)
Future value = Present value ( 1 + r)n
Future value = 7500 * ( 1 + 0.0525)5
Future value = 7500 * 1.291548
Future value = $9,687
b: no. John has only $9687 in his home improvement account
17)
Present value = Future value / ( 1 + r)n
Present value = 10,000 / ( 1 + 0.03875)15
Present value = 10,000 / 1.768746
Present value = $5654
18)
c: Discount
We discount the future values using a discount rate as done in question 17.