MBA512 Moodle 3

Kroencke Freight is saving money to build a new loading platform. Three years ago, they set aside $23,000 for this purpose. Today, that account is worth $31,406. What annually compounded rate of interest is the firm earning on this investment?

=(31406/23000)^(1/(4-1))-1 10.94%

Assume the average price of a new vehicle in the United States last year was $36,420. The average price five years earlier was $31,208. What was the annual increase in the price over this time period?

=(36420/31208)^(1/(6-1))-1 3.14%

On your tenth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today?

=NPER(0.045,0,-300,756) =21 21+10 Age 31

You're trying to save to buy a new $68,000 sports car. Currently, you have saved $36,840 which is invested at 4.9 percent annually compounded interest. How many years will it be before you purchase the car, assuming the price of the car remains constant?

=NPER(0.049,0,-36840,68000) 12.81 years

According to the Rule of 72, you can do which one of the following?

Approximately double your money in 11 years at 6.55 percent interest The rule of 72 is a shortcut to estimate the number of years required to double your money at a given annual rate of return. The rule states that you divide the rate, expressed as a percentage, into 72: Years required to double investment = 72 ÷ compound annual interest rate. 72/6.55 = 11

Jared invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as:

interest on interest.

Excel Arguments

rate - The interest rate per period. nper - The total number of payment periods. pmt - The payment made each period. Must be entered as a negative number. pv - [optional] The present value of future payments. If omitted, assumed to be zero. Must be entered as a negative number. type - [optional] When payments are due. 0 = end of period, 1 = beginning of period. Default is 0.

Your cousin deposited $2,500 today at 6.5 percent interest for 15 years. However, you can only earn 6.25 percent interest. How much more money must you deposit today than your cousin invested if you are to have the same amount saved at the end of the 15 years? (Assume annual compounding on both accounts.)

Step 1, calculate the future value of cousin's deposit: Excel future value: FV(interest, duration, payment, present value)*-1 =(FV(0.065,15,0,2500))*-1 =$6,429.60 Step 2: calculate the present value of your deposit amount by using step 1 as future value =(PV(0.0625,15,0,6429.6))*-1 =$2,589.70 $2,589.70 - $2,500 $89.70

Future Value FV = PV(1 + r)t

FV = future value PV = present value r = period interest rate, expressed as a decimal t = number of periods

Caroline is going to receive a award of $20,000 six years from now. Jiexin is going to receive an award of $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent?

In today's dollars, Caroline's award is worth more than Jiexin's.

To Compute Present Value

PV = FV/(1 + r)t

You have just received notification that you have won the $1.25 million first prize in the Centennial Lottery. The prize will be awarded on your 100th birthday, 79 years from now. The appropriate discount rate is 6.4 percent, compounded annually. What is the present value of your winnings?

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period) =1250000/1.064^79 $9,300.82

You want to have $30,000 saved 5 years from now to buy a house. How much less do you have to deposit today to reach this goal if you can earn 3.5 percent rather than 2.5 percent on your savings? Today's deposit is the only deposit you will make to this savings account. (Assume annual compounding.)

compare in excel =PV(0.035,5,0,30000) with =PV(0.025,5,0,30000) goal = $ 1,256.43