Question 1: Calculate the future value of the following:
o $5,000 compounded annually at 6% for 5 years
o $5,000 compounded semiannually at 6% for 5 years
o $5,000 compounded quarterly at 6% for 5 years
o $5,000 compounded annually at 6% for 6 years
Question 2: Answer the following: What conclusions can be drawn about the frequency of compounding interest? What conclusions can be drawn about the length of time an amount is compounding?
Question 3: Calculate the present value of the following:
o $7,000 in 5 years at an annual discount rate of 6%
o $7,000 in 5 years at a semiannual discount rate of 6%
o $7,000 in 5 years at a quarterly discount rate of 6%
o $7,000 in 6 years at an annual discount rate of 6%
Question 4: Answer the following: What conclusions can be drawn about the frequency of the discounting interval? What conclusions can be drawn about the length of time until the receipt of that value?
Question 5: Answer the following: Assume you have a choice between two annuity contracts. Contract A pays $5,000 per year for 5 years starting one year from today. Contract B pays $5,000 per year for 5 years starting today. The discount rate for each is 6%. Which annuity contract would you choose for your retirement? Why?