1. You are hoping to buy a house in the future and recently received an inheritance of ?$18, 000. You intend to use your inheritance as a down payment on your house.
a. If you put your inheritance in an account that earns 7 percent interest compounded? annually, how many years will it be before your inheritance grows to ?$35,000?
b. If you let your money grow for 10 years at 7 percent?, how much will you? have?
c. How long will it take your money to grow to ?$35,000 if you move it into an account that pays 5 percent compounded? annually? How long will it take your money to grow to ?$35, 000 if you move it into an account that pays 11 percent??
d. What does all this tell you about the relationship among interest? rates, time, and future? sums?
2. You just received a bonus of ?$1, 000
a. Calculate the future value of $1000, given that it will be held in the bank for 8 years and earn an annual interest rate of 4 percent.
b. Recalculate part ?(a?) using a compounding period that is? (1) semiannual and? (2) bimonthly.
c. Recalculate parts (a?) and (b?) using an annual interest rate of 8 percent.
d. Recalculate part (a?) using a time horizon of 16 years at an annual interest rate of 4 percent.
e. What conclusions can you draw when you compare the answers in parts ?(c?) and (d?) with the answers in parts (a?) and (b?)?