Question

1. The appropriate discount rate for the following cash flows is 6 percent compounded quarterly. Year...

1. The appropriate discount rate for the following cash flows is 6 percent compounded quarterly.
Year Cash Flow
1        $900               
2          600               
3       0               
4 1,100               

Required:

What is the present value of the cash flows?

A. $2,202.3

B. $2,254.36

C. $2,247.24

D. $1,129.24

E. $2,292.19

2. What is the future value of $500 in 23 years assuming an interest rate of 9 percent compounded semiannually?

A. $665.56

B. $3,787.21

C. $3,628.94

D. $3,597.85

E. $594.59

3. You deposit $1,300 at the end of each year into an account paying 8.6 percent interest.
Required:
(a) How much money will you have in the account in 23 years?

A.97,968.60

B. 29,900.00

C. 85,700.05

D. 27,875.20

E. 75,111.95

(b) How much will you have if you make deposits for 46 years?

A. 480,052.52

B. 59,800.00

C. 657,266.93

D. 70,392.29

E. 904,701.30

Homework Answers

Answer #1

Answer 1.

Annual Interest Rate = 6%
Quarterly Interest Rate = 1.5%

Present Value = $900/1.015^4 + $600/1.015^8 + $0/1.015^12 + $1,100/1.015^16
Present Value = $2,247.24

Answer 2.

Present Value = $500
Semiannual Period = 46 (23 years)
Annual Interest Rate = 9%
Semiannual Interest Rate = 4.5%

Future Value = $500 * 1.045^46
Future Value = $3,787.21

Answer 3-a.

Annual Deposit = $1,300
Annual Interest Rate = 8.6%
Period = 23 years

Accumulated Sum = $1,300 * FVIFA(8.6%, 23)
Accumulated Sum = $1,300 * (1.086^23 - 1) / 0.086
Accumulated Sum = $85,700.05

Answer 3-b.

Annual Deposit = $1,300
Annual Interest Rate = 8.6%
Period = 46 years

Accumulated Sum = $1,300 * FVIFA(8.6%, 46)
Accumulated Sum = $1,300 * (1.086^46 - 1) / 0.086
Accumulated Sum = $657,266.93

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