Fin Ch. 3

$121

$100 deposit today that earns an annual interest rate of 10% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year.

FV = PV × (1 + r)n

Which of the following is the correct formula for calculating the future value?

B) No; John has only $9,687 in his home improvement account.

A home improvement firm has quoted a price of $9,800 to fix up John's backyard. Five years ago, John put $7,500 into a home improvement account that has earned an average of 5.25% per year. Does John have enough money in his account to pay for the backyard fix-up?

The FV is $224.72

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is true?

The interest earned in year one is $12.00 and year two is $12.72

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is true?

The future value would be greater if the interest rate was higher.

A two-year investment of $3500 is made today at an annual interest rate of 5.75%. Which of the following statements is true?

The interest earned in year one is $8.00 and the interest earned in year two is $8.64.

An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%. How much interest is earned in the first year and how much in the second year of this investment?

$26,405 and $31,448

In two years Boris plans to enroll at Cleese University, a prestigious university in the Pacific Northwestof the USA. If the current tuition is $23,500 per year and is expected to increase at a rate of 6% per year, how much will Boris pay in tuition his first year of school? (His first tuition payment is exactly two years from today.) In his fourth year? (His last tuition payment is exactly 5 years from today) (Rounded to the nearest dollar.)

Yes, they can afford the "nice" cabin but NOT the luxury cabin because their $4,500 investment will only increase to $5,360 by the end of year three.

Jasmine and her spouse have saved $4,500 for a 12-day cruise vacation in Europe. The couple needs $5,000 for a "nice" cabin or $6,000 for a "luxury" cabin. If cabin prices are expected to remain constant for the next three years and Jasmine expects to earn 6% per year on her investments, will the couple's savings be enough to afford the "nice" cabin in three years? Can they afford the luxury cabin? Why or why not?

Buy now because if Steve invests the $22,000 today it will only increase in value to $23,340, and this is less than the cost of his desired new car in two years.

Steve would like to buy a new car but must complete a two-year commitment to the Peace Corp before he will drive the new car. The current price of the car Steve wants to buy is $22,000, and the dealer expects the price of a similar new car to be $24,000 in two years. If Steve can earn an annual interest rate of 3% on his money, should he buy the car now or wait for two years? Why? Note: Storage costs if Steve purchases the car are $0. Please limit your considerations to the factors offered in the answer choices.

lump-sum

The one-time payment of money at a future date is often called a ________.

D) An investment of $100 invested at 5% per year for 10 years because it has a future value of $162.89.

Which of the following investments has a larger future value? A $100 investment earning 10% per year for 5 years or a $100 investment earning 5% per year for 10 years?

A) PV = $50, r= an annual interest rate of 10%, and n= 8 years. B) PV = $75, r=an annual interest rate of 12%, and n= 3 years. C) PV = $90, r=an annual interest rate of 14%, and n= 1 year. *D) All of the future values are greater than $100

Which of the following will result in a future value greater than $100?

The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7%

Your grandmother places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is correct?

Compound interest

________ is simply the interest earned in subsequent periods on the interest earned in prior periods.