1. If Samantha invests $700 today in an account that pays 4 percent interest compounded annually, how much will she have in her account four years from today?
2. Fifteen (15) years ago, your parents purchased an investment for $2,500. If the investment earned 6 percent interest each year, how much is it worth today?
3. What is the present value of $1,500 due in 14 years at a (a) 5 percent interest rate and (b) 10 percent rate. Explain why the present value is lower when the interest rate is higher.
4. Matt is considering the purchase of an investment that will pay him $12,500 in 12 years. If Matt wants to earn a return equal to 7 percent per year (annual compounding), what is the maximum amount he should be willing to pay for the investment today?
5. Suppose you invest $385 at the end of each of the next eight years.
(a) If your opportunity cost rate is 7 percent compounded annually, how much will your investment be worth after the last $385 payment is made?
(b) What will be the ending amount if the payments are made at the beginning of each year?
6. If the opportunity cost rate is 7.5 percent, what is the present value of an investment that pays $500 at the end of this year, $400 at the end of the next year, and $300 at the end of the following year? What is the present value if the payments are made at the beginning of each year?
7. Ten years ago, Bruce invested $1,250. Today, the investment is worth $3,550. If interest is compounded annually, what annual rate of return did Bruce earn on his investment?
8. William recently graduated from NFA University. While at NFA, William took out a $50,000 student loan. His loan requires him to make monthly payments for a 10-year period.
(a) If the simple annual interest is 4.2 percent, what are William's monthly payments?
(b) To the nearest dollar, how much will William owe on his student loan after he makes payments for three years?
9. When Sarah Jean purchased her house 12 years ago, she took out a 30-year mortgage for $220,000. The mortgage has a fixed interest rate of 6 percent compounded monthly.
(a) Compute Sarah Jean's monthly mortgage payments.
(b) If Sarah Jean wants to pay off her mortgage today, for how much should she write a check? She made her most recent mortgage payment earlier today.
10. Nona purchased a new car earlier today for $32,000. She financed the entire amount using a five-year loan with a 3 percent interest rate (compounded monthly).
(a) Compute the monthly payments for the loan.
(b) How much will Nona owe on the loan after she makes payments for two years (i.e., after 24 payments)?