Part II. (Formula Practice) Please write formulas ONLY. (DON’T WASTE YOUR TIME HERE TO FIND THE ANSWER.) Assume annual compounding, unless otherwise specified.
1. Suppose you have $100 to invest. If you want to receive $500 in 10 years, what should be your interest rate?
2. Rick is planning to invest the following amounts at 6 percent interest. How much money will he have saved at the end of year 3?
End of year: Amount saved:
1 $500
2 $800
3 $900
3. Given the case of Rick from (7), how much would it be worth in today’s dollars?
4. Nina is planning to invest $100 at 5 percent interest at the end of each year. How much money would the investment be worth in today’s dollars?
5. Nina is planning to invest $100 at 5 percent interest at the beginning of each year. How much money would the investment be worth in today’s dollars?
6. Today, you are purchasing a 10-year, 5 percent annuity at a cost of $10,000. The annuity will pay annual payments starting 1 year from today. What is the amount of each payment?