# Finance Assignment

Topics: Interest, Loan, Debt Pages: 6 (1747 words) Published: June 24, 2013
Assignment 1
Q1.) (5 points) \$50 today is worth MORE than \$50 tomorrow.(Tell True or False) Q2.) \$100 invested for 10 years at 12% interest is worth more in FV terms than \$200 invested for 10 years at 4% interest. (Tell True or False) Q3.) 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? Q4.)Johnny and Darren both earn \$100 working on their respective neighbors' big farms. Johnny puts his \$100 in the piggy bank that his parents gave him to encourage him to save. Darren puts his money in a savings account his parents set up for him. The savings account pays 3% interest. They both take their money out after 5 years. How much more money does Darren have than Johnny?(16/3/9/10) Q5.) 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?  Q6.) Cindy and Jennifer are twin sisters. They both have a \$10,000 investment earning 7%. Cindy withdraws \$2,000 of her money now and goes on a shopping spree. Jennifer keeps all her money invested. After 15 years, when each are looking for money to put a down payment on a house, how much more does Jennifer have? Q7.) The Johnson family is worried about their ability to pay college tuition for their daughter Chloe. Tuition rates are currently \$9,500 per year at the state college and have been increasing at a rate of 7% annually. Chloe will begin college in 7 years. The Johnson’s have \$9,500 set aside now in a college plan that will earn 6% per year. They recently heard about a plan to pre-pay tuition at current rates, that is pay \$9,500 per year of college. Should they pre-pay Chloe’s first year now or keep the money invested and pay the tuition 7 years from now? How much are they saving in FV terms with this decision? Pre-pay; 781

Don't Pre-pay; 970
Pre-pay; 970
Don't Pre-pay; 781
Don't Pre-pay; 685
Pre-pay; 685

Q8.)Juan has \$100,000 to invest and he has narrowed down his decision to two investments. Option A returns 60% annually for 4 years, but the maximum investment he can make is \$10,000. Option B returns 12% annually for 4 years and would require the entire \$100,000. Which option produces the best result for Juan and what is the benefit over the lesser option? Assume that the \$90,000 not invested in Option A would be placed in a safe deposit box earning no interest. Option A; 1816

Option B; 9532
Option A; 9532
Option A; 19373
Option B; 1816
Option B; 19373

Q9) Rondo is in the market for a new car. He has narrowed his search down to 2 models. Model A costs \$32,000 and Model B costs \$28,000. With both cars he plans to pay cash and own them for 4 years before trading in for a new car. His research indicates that the trade in value for Model A after 4 years is 60% of the initial purchase price, while the trade in value for Model B is 45%. The interest rate is 5%. For simplicity assume that operating and maintenance costs for the models are identical. Which model is the better decision and how much "cheaper" is it than the alternative? Model A; 4000

Model A; 1430
Model A; 1257
Model B; 1430
Model B; 4000
Model B; 1207
10.) College tuition has been rising at a rate of 7% per year. Currently the average tuition of a state college is \$9,500/year. Andrea’s son Trevor will begin college in 12 years. Andrea’s portfolio is making 5% annually. How much does Andrea need to have set aside today/now to pay for 4 years of college for Trevor? (Note:Tuition will continue to change annually and Andrea’s portfolio balance will continue to accrue interest while Trevor is in...