Assignment 1

Topics: College tuition, Time value of money, Mathematics Pages: 7 (1189 words) Published: December 27, 2014
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You submitted this Assignment on Sun 26 Oct 2014 4:11 PM EET. You got a score of 100.00 out of 100.00.

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) $100 today is worth the SAME as $100 tomorrow.
Your Answer

Score

Explanation

5.00

Correct. You understand time value

True
False



Total

5.00 / 5.00

Question Explanation
We have assumed that 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
True



Score

Explanation

5.00

Correct. You know the mechanics for calculating FV.

False
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)

You entered:
189

Your Answer
189



Total

Score

Explanation

5.00

Correct, You know it has to be less than $200.

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

10.00

Correct. You know how to calculate FVs!

Jeff; 1935
Marge; 1604
Marge; 1935
Jeff; 1806
Jeff; 1604



Marge; 1806
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 the nearest whole dollar.) You entered:

98358

Your Answer
98358



Total

Score

Explanation

10.00

Correct. You know how to accurately calculate FV.

10.00 / 10.00

Question Explanation
Simple future value calculation. The amount has to be at least $85,000 even if you completely ignore compounding.

Question 6
(10 points) Bridgette’s grandparents opened a savings account for her and placed $500 in the account. The account pays 3.5% interest. Bridgette wants to be a singer and she has her heart set on a new karaoke machine. The machine costs $150. How much less will the account be worth in 8 years if she buys the karaoke machine now versus leaving the account untouched? (Enter just the number without the $ sign or a comma; round to the nearest whole dollar.) You entered:

198

Your

Score

Explanation

10.00

Correct. You know that it has to be more than $150, and

Answer
198



actually by at least $42.
Total

10.00 /
10.00

Question Explanation
Again a simple FV calculation, but need to read the question carefully to save time and calculate it only once.

Question 7
(10 points) The Johnson family is...
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