FINA 366 Chapter 14a

Jenny wants to go to Europe four years from now. She can save $4,000 per year, beginning one year from today. She plans to invest the funds in the S&P 500 index fund that she thinks will return 10% per year. Under these conditions, how much will she have saved after she makes the 4th deposit, 4 years from now?

$18,564

Kathy currently has $15,000. How much will she have after 8 years if she leaves it invested at 8.5% with annual compounding?

$28,809.07

You want to buy a new sports car 5 years from now, and you plan to save $5,800 per year, beginning one year from today. You will deposit your savings in an account that pays 6% interest. How much will you have just after you make the 5th deposit, 5 years from now?

$32,695

The average annual return for the S&P 500 since its inception in 1928 through 2014 is approximately 10%. Assume a person invested $1.00 in the S&P 500 Index every year since the end of 1928. It would have grown into $_______ by the end of 2014

$36,278.66

Noah wants to quit his job and return to school for a MBA degree at the end of two years. He plans to save and deposit $2,000 per month, beginning immediately from the beginning of first month. He will make monthly deposits in an account that pays 3% nominal interest (0.25% monthly). Under these assumptions, how much will he have accumulated at the end of two years?

$49,405

Ben Franklin invested 1,000 pounds (about $50,000 today) at the beginning of the year 1785. Assume the average annual return he earned from 1785 to the end of 1984 (200 years) was 2.4%. How much was Franklin's investment worth at the end of 1984?

$5,740,653.48

Equity Real Estate Investment Trusts are REITs that invest in and operate commercial properties. From 2000 to 2006, equity REITs delivered an average annualized return of 22.9%. John invested $5,000 in equity REITs at the beginning of every year from 2000 to 2006. How much was his investment worth at the end of 2006?

$86,810.74

A house is bought for $240,000 in at the end of 2010. By the end of 2015, it seems that the market has increased at a rate of 8% per year since 2010. What is the estimated current value of the house?

352,638.74

You are investing your money at a compound annual return of 8%. It will take about ________ , Incorrect Unavailable years for your money to double.

9

An investor originally paid $22,000 for a vacant lot 12 years ago. If the investor is able to sell the lot today for $63,000, what would be her annual rate of return (rounded to the nearest full percent)?

9%

A cash inflow or outflow that is forecasted to occur once over the analysis period, should be entered in the ______ register.

FV

A fixed (level) cash inflow or outflow (ex., monthly or annually) should be entered in the

PMT register

Timelines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.

The cash flows for an annuity due must all occur at the beginning of each period.

Which of the following statements is correct?

Timelines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.

Calculation of the expected future value of a house in 5 years growing at an expected rate is called

compounding

As the perceived risk of expected future cash flows increases,

the required (expected) return should increase