Question

1.) Sarah invested $5,000 in an account she expects will earn 8% annually. Approximately how many years will it take for the account to double in value?

Question 10 options:

8

9

10

11

2.) Elena invested $5,000 thirty years ago. If she earned 8% annually, what is it worth today?

Question 11 options:

$17,000

$36,400

$50,313

$123,023

3.) Fred needs to accumulate $40,000 for his son’s first year college tuition in 10 years.

How much does Fred need to set aside today to achieve his goal? Assuming he will add no more mon-

ey later to this fund, and he can earn 8% annual interest on his savings. ( Present value interest factor

at 8%, in 10 years is PVIF(8%, 10) = 0.463)

Question 12 options:

$24,000

$18,520

$9,260

$150,000

Answer 1

1. The number of years is computed as shown below:

Future value = Present value x (1 + r)ⁿ

$ 10,000 = $ 5,000 x (1 + 0.08)ⁿ

2 = 1.08 ⁿ

Take log both sides, we shall get:

log 2 = n log 1.08

0.693147181 = n x 0.076961041

n = 0.693147181 / 0.076961041

n = 9.01 years Approximately

2. The amount is computed as follows:

Future value = Present value x (1 + r)ⁿ

= $ 5,000 x 1.08³⁰

= $ 50,313 Approximately

3. The amount is computed as follows:

Present value = Future value / (1 + r)ⁿ

= $ 40,000 / 1.08¹⁰

= $ 18,520 Approximately

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