1. Kate Eden received a graduation present of $2,000 that she is planning on investing in a mutual fund that earns 8.5 percent each year. How much money can she collect in 3 years?
2. Your bank pays 5 percent interest semiannually on your savings account. The current balance in the account is $3,000. How much money will you have at the end of four years?
3. Santiago Hernandez is planning to invest $25,000 in a money market account for two years. The account pays interest of 6.0 percent compounded on a monthly basis. How much money will Santiago Hernandez have at the end of two years?
4. You invest $1,500 in a mutual fund today that pays 9 percent interest every year. How long will it take to double your money in years?
5. What is the future value of $10,000 invested at 10% for 10 years with continuous compounding?
6. You bought a corporate bond for $863.75 today. In five years the bond will mature and you will receive $1,000. What is the rate of return on this bond?
7. What is the present value of a $10,000 investment received in five years at 10 percent compounded semiannually??
8. What is the present value of $10,000 received in five years at 10 percent compounded monthly?
9. What is the present value of $10,000 received in five years at 10 percent compounded continuously?
10. Sam Braxton, the number one draft pick of the Phoenix Cardinals (NFL), and his agent are evaluating the following contract option. The contract provides for a series of annual payments over the next three years. What is the present value of these payments if Sam's required rate of return is 10 percent? (Hint: discount each cash flow to the present and then sum.)
Year 1: $1,000,000
Year 2: $1,250,000
Year 3: $1,500,000