Read Chapter 1, “An Introduction to Basic Finance,” and Chapter 7, “The
Time Value of Money.”
Do Problems 1, 2, 3, 5, 6, 7, 12, and 13 on pages 128–130 of the textbook.
Submit your answers to these problems as Written Assignment 1 (consult the Course Calendar for the assignment due date). To receive full credit for your answers, you must show all work and include complete solutions.
1. You invest $1,000 in a certificate of deposit that matures after 10 years and pays 5 percent interest, which is compounded annually until the certificate matures.
a. How much interest will you earn if the interest is left to accumulate?
b. How much interest will you earn if the interest is withdrawn each year?
c. Why are the answers to a and b different?
2. A self-employed person deposits $3,000 annually in a retirement account (called a Keogh account) that earns 8 percent.
a. How much will be in the account when the individual retires at the age of 65 if the savings program starts when the person is age 40?
b. How much additional money will be in the account if the saver defers retirement until age 70 and continues the contributions?
c. How much additional money will be in the account if the saver discontinues the contributions at age 65 but does not retire until age 70?
3. A 45-year-old woman decides to put funds into a retirement plan. She can save $2,000 a year and earn 9 percent on this savings. How much will she have accumulated if she retires at age 65? At retirement how much can she withdraw each year for 20 years from the accumulated savings if the savings continue to earn 9 percent?
5. If a parent wants to have $100,000 to send a newborn child to college, how much must be invested annually for 18 years if the funds earn 9 percent? (Any current student who subsequently becomes a parent and wants to send a child to college should make this calculation early in the child’s life.)
6. A widow currently has a $93,000 investment yielding 9 percent annually. Can she withdraw $16,000 a year for the next 10 years?
7. An investment generates $10,000 per year for 25 years. If you can earn 10 percent on other investments, what is the current value of this investment? If its current price is $120,000, should you buy it?
12. You are 25 years old and inherit $65,000 from your grandmother. If you wish to purchase a $100,000 boat to celebrate your 30th birthday, what compound annual rate of return must you earn?
13. An investment offers to pay you $10,000 a year for five years. If it costs $33,520, what will be your rate of return on the investment?
Paper#50779 | Written in 16-Dec-2015Price : $14