Money and Annual Interest Rate
1) A $100 deposit today that earns an annual interest rate of 10% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year. 2) An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%. How much interest is earned in the first year and how much in the second year of this investment? 3) Which of the following investments has a larger future value? A $100 investment earning 10% per year for 5 years or a $100 investment earning 5% per year for 10 years? 4) The current price on a 60-inch flat panel LCD HD television is $2,300. Big screen HD television prices have dropped at an average rate of 9% per year in recent years. If you expect this trend to continue, how much will this style of television cost in three years? 5) You have purchased a Treasury bond that will pay $10,000 to your newborn child in 15 years. If this bond is discounted at a rate of 4% per year, what is today's price (present value) for this bond? 6) Your university is running a special offer on tuition. This year's tuition cost is $18,000. Next year's tuition cost is scheduled to be $19,080. The university offers to discount next year's tuition at a rate of 6% if you agree to pay both years' tuition in full today. How much is the total tuition bill today if you take the offer? 7) An investment promises a payoff of $195 three years from today. At a discount rate of 8% per year, what is the present value of this investment? 8) Your parents plan to spend $20,000 on a car for you upon graduation from college. If you will graduate in three years and your parents can earn 4% annually on their investment, how much money must they set aside today for your car? 9) You intend to buy a vacation home in seven years and plan to have saved $50,000 for a down payment. How much money would you have to place today into an investment that earns 8% per year to