Question

Practice Problems 1. You invest $8,000 in a savings account, the interest rate is 12% per year and the length of time is 15 years. Compounding is monthly. What is the value of the savings account at the end of ten years? 2. What would be the answer if compounding is every six months? 3. How many periods does it take for money to double if the interest rate is 12% per period? 4. If the interest rate is 12% and compounding is monthly, how long does it take for your money to triple? 5. What is the interest rate if FV = 1,000, PV 600, and t = 50 periods? 6. What is the annual rate (APR) if compounding is monthly, and the interest rate is 4% 7. Let there be two compounding periods per year. Let the APR be 10%. What is the EAR? 6% and compounding is monthly? 8. What is EAR if APR 9. Consider an annuity. What is the payment amount per month if PVA = 1,000, r 6%, and for five years? 10. Wil C go up or down if be if r increases? 11. You believe that you will need $800,000 by the time you retire in 40 years Assume an interest rate of 6% per year. How much wi you need to contribute to your IRA (individual retirement account) each year? 12. Given the above facts, how much would you have to contribute if you assumed that the interest rate will be 9.7%? 13. What is the value of the bond if the bond is 6% bond, ten year bond, and the YTM is 8% As in most bonds, coupons are paid semiannually 14. What is the coupon of the bond. There is ten years outstanding on the bond, the pricing of the bond is S1,050, and the YTM is 8%? As in most bonds, coupons are paid semiannually 15. What is the yield to maturity of the bond? There are five years outstanding on the bond, the pricing of the bond is $1,050, and the coupon is 6%? As in most bonds, coupons are paid semiannually 16. Assume a project costs $5,000, and has cash flows of $2,000 at the end of period 1, $2,000 at the end of period 2, and $3, 000 at the end of period 3. What is the payback? 17. Assume the same facts as above, but now assume that the discount rate is 14%

Answer 1

1.
=8000*(1+12%/12)^(12*15)=47966.4158028494

2.
=8000*(1+12%/2)^(2*15)=45947.9293833061

3.
=LOG(2)/LOG(1+12%)=6.1162553741997

4.
=1/12*LOG(3)/LOG(1+12%/12)=9.20080200413907 years

P.S.: I am not allowed to answer more than 4 questions