1. Calculating rates of return. Refer back to Series EE saving bonds
a. Assuming you purchased a $50 face value bond, what is the exact rate of return you would earn if you held the bond for 20 years until it doubled in value?
b. If you purchased a $50 face value bond in early 2014 at the then current interest rate of .10 percent per year, how much would the bond be worth in 2024?
c. In 2024, instead of cashing the bond in for its then current value, you decide to hold the bond until it doubles in face value in 2034. What rate of return will you earn over the last 10 years?
2. Calculating Present Values. Suppose you are still commited to owning a $225,000 Ferrari. If you beleive your mutual fund can achieve a 12 percent annual rate of return and you want to buy the car in 9 years on the day you turn 30, how much must you invest today?
3. Calculating Future Values. YOu have just made your first $5,000 contribution to your retirement account. Assuming you earn a return of 10 percent per year and make no additional contributions, what will your account be worth when you retire in 45 years? What if you wait 10 years before contributing?