5-1A. (Compound interest) To what amount will the following investments accumulate?
a. $5,000 invested for 10 years at 10 percent compounded annually
b. $8,000 invested for 7 years at 8 percent compounded annually
c. $775 invested for 12 years at 12 percent compounded annually
d. $21,000 invested for 5 years at 5 percent compounded annually
5-4A. (Present value) What is the present value of the following future amounts?
a. $800 to be received 10 years from now discounted back to the present at 10 percent
b. $300 to be received 5 years from now discounted back to the present at 5 percent
c. $1,000 to be received 8 years from now discounted back to the present at 3 percent
d. $1,000 to be received 8 years from now discounted back to the present at 20 percent
5-5A. (Compound annuity) What is the accumulated sum of each of the following streams of
a. $500 a year for 10 years compounded annually at 5 percent
b. $100 a year for 5 years compounded annually at 10 percent
c. $35 a year for 7 years compounded annually at 7 percent
d. $25 a year for 3 years compounded annually at 2 percent
5-6A. (Present value of an annuity) What is the present value of the following annuities?
a. $2,500 a year for 10 years discounted back to the present at 7 percent
b. $70 a year for 3 years discounted back to the present at 3 percent
c. $280 a year for 7 years discounted back to the present at 6 percent
d. $500 a year for 10 years discounted back to the present at 10 percent
The solution examines compound and accumulate interest on investments. To what amount specific investments will be accumulated to is found.
Business Finance Review Questions
What are the monthly mortgage payments on a 30-year loan for
$150,000 at 12%?
You have two assets in your portfolio: a stock mutual fund with a
beta of 1.20 and U.S. Treasury securities (assume they are risk free).
What is the beta for your portfolio if 40% of your funds are invested
in the treasury securities?
Find the beta of a portfolio of three stocks. One third of the portfolio
is invested in each of the three stocks. The stocks and their betas
are as follows: Mallmart - beta 1.10, Peak Power - beta 0.85 and
MicroEase - beta 1.40
What is an investment worth that promises to return $10,000 per
year, given a required rate of return of 15%, if the benefits are
expected for 10 years?
What will a deposit of $4,500 at 12% compounded monthly be worth
at the end of 10 years?
How long does it take for $5,000 to grow into $6,742.44 at
10% compounded quarterly?
How much must you deposit at the end of each year in an account
that pays a annual rate of 20 percent, if at the end of 5 years you
want $10,000 in the account?
What interest rate would you need to get to have an annuity of
$7,500 per year accumulate to $279,600 in 15 years
What would you pay for an annuity of $2,000 paid every six months
for 12 years if you could invest your money elsewhere at 10%
Thirty years ago Jesse Jones bought 10 acres of land for $1,000
per acre in what is now downtown Houston. If this land grew in
value at an 8 percent per annum rate, what is it worth today?
A $10,000 car loan has payments of $361.52 per month for three
years. What is the interest rate? Assume monthly compounding
and give the answer in terms of an annual rate.
Find the present value of $1,000 to be received at the end of 2 years
at 12% compounded quarterly?