Introduction to Finance

Topics: Investment, Interest, Rate of return Pages: 2 (601 words) Published: April 24, 2013
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Please read all questions and instructions carefully. Note that you only need to enter answers in terms of numbers and without any symbols (including $, %, commas, etc.). Enter all monetary answers to the nearest dollar (no decimal/cents) and all interest rates to the nearest on hundredth of a percent (two decimal places). Read the syllabus for examples. The points for each question are listed in parentheses at the start of the question, and the total points for the entire assignment add up to 100. Question 1

(5 points) $50 today is worth MORE than $50 tomorrow.
Your Answer| | Score| Explanation|
True| | 5.00| Correct. You understand Time value of money.| Total| | 5.00 / 5.00| |
Question Explanation
We have assumed time value of money is positive.
Question 2
(5 points) $100 invested for 10 years at 12% interest is worth more in FV terms than $200 invested for 10 years at 4% interest. Your Answer| | Score| Explanation|
False| | 0.00| Learn how to calculate FVs of simple one-shot cash flows. Intuitively, compounding should favor the first option.| Total| | 0.00 / 5.00| |
Question Explanation
All about compounding.
Question 3
(5 points) Megan wants to buy a designer handbag and plans to earn the money babysitting. Suppose the interest rate is 6% and she is willing to wait one year to purchase the bag. How much babysitting money (to the nearest whole dollar) will she need to earn today to buy the bag for $400 one year from now? (Enter just the number without the $ sign or a comma) Answer for Question 3

Your Answer| | Score| Explanation|
377| | 5.00| Correct. You know it has to be less than $400.| Total| | 5.00 / 5.00| |
Question Explanation
Simple PV calculation.
Question 4
(10 points) Jeff has $1,000 that he invests in a safe financial instrument expected to return 3% annually. Marge has $500 and invests in a more risky venture that is expected to return 7% annually. Who has more after 20...
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