FIN CHAPTER 06 SOL complete 1-8

CHAPTER 6

6-1

FUTURE VALUE        If you deposit $10,000 in a bank account that pays 10 percent interest annually, 

HOW MUCH MONEY WILL BE IN YOUR ACCOUNT AFTER 5 YEARS?
6-2

PRESENT VALUE        WHAT IS THE PRESENT VALUE OF A SECURITY THAT PROMISES TO PAY YOU $5,000 IN 20 YEARS?  

ASSUME THAT YOU CAN EARN 7 PERCENT IF YOU WERE TO INVEST IN OTHER SECURITIES OF EQUAL RISK.
6-3

TIME FOR A LUMP SUM TO DOUBLE        If you deposit money today into an account that pays 6.5 percent interest, 

HOW LONG WILL IT TAKE FOR YOU TO DOUBLE YOUR MONEY?

6-4

REACHING A FINANCIAL GOAL        John Roberts has $42,180.53 in a brokerage account, and he plans to contribute an additional $5,000 to the account at the end of every year.  The brokerage account has an expected annual return of 12 percent.  

IF JOHN’S GOAL IS TO ACCUMULATE $250,000 IN THE ACCOUNT, HOW MANY YEARS WILL IT TAKE FOR JOHN TO REACH HIS GOAL?

6-5

EFFECTIVE RATE OF INTEREST        Your parents are planning to retire in 18 years.  They currently have $250,000, and they would like to have $1,000,000 when they retire.  

WHAT ANNUAL RATE OF INTEREST WOULD THEY HAVE TO EARN ON THEIR $250,000 IN ORDER TO REACH THEIR GOAL, ASSUMING THEY SAVE NO MORE MONEY?

6-6

FUTURE VALE OF AN ANNUITY        WHAT IS THE FUTURE VALUE OF A 5-YEAR ORDINARY ANNUITY THAT PROMISES TO PAY YOU $300 EACH YEAR?  THE RATE OF INTEREST IS 7 PERCENT.

6-7

FUTURE VALUE OF AN ANNUITY DUE        WHAT IS THE FUTURE VALUE OF A 5-YEAR ANNUITY DUE THAT PROMISES TO PAY YOU $300 EACH YEAR?  ASSUME THAT ALL PAYMENTS ARE REINVESTED AT 7 PERCENT A YEAR, UNTIL YEAR 5.

6-8

PRESENT AND FUTURE VALUE OF A CASH FLOW STREAM        An investment pays you $100 at the end of each of the next 3 years.  The investment will then pay you $200 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6.  

IF THE INTEREST RATE EARNED ON THE INVESTMENT IS 8 PERCENT, WHAT IS ITS PRESENT VALUE?  WHAT IS ITS FUTURE VALUE?