Part 1
Mark your answers on a scantron form and hand it in class by the due date.
PROBLEM 1: Kay has $200 to invest. If she invests the money at 8% compounded semiannually for 3 years, the future value is closest to:
a) $253
b) $317
c) $158
d) $252
e) $316
PROBLEM 2: Kimberly pays $29.50 for a $100 savings bond with a maturity of 25 years. Assuming annual compounding, what is the interest on this bond closest to:
a) 4%
b) 5%
c) 6%
d) 7%
e) 8%
PROBLEM 3: Hoa invests $4,500 today and $2,000 at the end of next year (year 2). What is the total amount in Hoa's account at the end of year 3 if annual interest is 6%?
a) $7,000.00
b) $5,056.20
c) $6,890.00
d) $7,056.20
e) $7,479.57
PROBLEM 4: Mathew invests $1,500 today and $1,500 one year from today, both at annual interest rate of 12% compounded annually. What will be the total amount in Mathew's account two years from today?
a) $3,180
b) $3,017
c) $3,562
d) $3,478
e) $3,222
PROBLEM 5: How much must Manuel have in his investment account on his 65th birthday so that he can withdraw $30,000 on that birthday and on each of the next 19 birthdays (interest rate is 8%)?
a) $264,540
b) $288,120
c) $294,540
d) $318,108
e) $340,109
PROBLEM 6: Christopher receives an ordinary annuity of $1,000 paid quarterly for 10 years (interest rate is 8%). What is the present value of this annuity?
a) $27,180.65
b) $26,840.33
c) $27,355.48
d) $27,902.58
e) $28,333.33
PROBLEM 7: Nathan deposits $1,000 into a bank. One year later, he deposits $3,000, and two years after that, $8,000. If the bank pays 4% interest compounded annually, what will Nathan's (approximate) bank balance be five years after the original deposit was made?
a) $12,865
b) $12,370
c) $13,915
d) $14,808
e) $13,380
PROBLEM 8: Jessica has just won an $8 million lottery jackpot. She will get the money in 26 equal installments of $307,692 each, starting immediately. The Li Li Finance Company offers her $2,000,000 cash if she signs the payments over to them. What interest is the Li Li Finance Company earning on this offer?
a) 15%
b) 5.5%
c) 7.5%
d) 17.9%
e) 7.8%
PROBLEM 9: Barry entered into a contract that requires him to make equal payments of $5,000 each year for 10 years. The first payment begins two years from now. What is the present value of this contract if Barry's cost of funds is 8%?
a) $31,065
b) $33,550
c) $28,764
d) $36,234
e) $33,007
PROBLEM 10: Vincent wants to contribute immediately towards his daughter's future college education. His daughter expects to attend college in 15 years and his goal is to have at least $100,000 at that time. Given that Vincent's savings earn 5.5%, which of the following is the approximate amount he needs to save each year to reach his goal?
a) $4,000
b) $4,300
c) $4,500
d) $5,000
e) $10,000