Introduction to Finance - Week 1 Assignment

Topics: Time value of money, Investment, Future value Pages: 4 (1153 words) Published: February 16, 2013
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) At an interest rate of 10% it is better to have $100 today than $120 in 2 years. Your Answer Score Explanation
True 5.00 Correct; it is compounding!
Total 5.00 / 5.00
Question Explanation

All about compounding!
Question 3
(5 points) Shawn wants to buy a new telescope. He estimates that it will take him one year to save the money and that the telescope will cost $200. At an interest rate of 6%, how much does Shawn need to set aside today to purchase the telescope in one year? (Enter just the number without the $ sign or a comma) Answer for Question 3

You entered:
Your Answer Score Explanation
189 5.00 Correct, You know it has to be less than $200. 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 years? And how much does he/she have in FV terms? Your Answer Score Explanation

Marge; 1935 10.00 Correct. You know how to calculate FVs! Total 10.00 / 10.00
Question Explanation

FV calculations of simple one-shot cash flows. Shows power of compounding. Question 5
(10 points) Don has just received a cash gift of $50,000 from his rich eccentric uncle. He wants to set it aside to pay for his daughter Cynthia’s college education. Cynthia will begin college in 10 years and Don’s financial advisor says that she can earn 7% interest on an investment in a special college fund. How much will Don have in the fund when Cynthia begins college? (Enter just the number without the $ sign or a comma; round to...
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