Question

 

3-Sue now has $3,315. How much would she have after 9 years if she leaves it invested at 7.34% with compounding periods 2?

5-You want to have $5,500 in five years with an account that yields 6% annually. You deposit $4,000 with the institution offering the account. Will you meet your goal?

A)Yes, because the rate of return over the 5 years is 7.5%

B)No, because the present value of $5,500 at 6% annually for 5 years is $4,059.75

C)Yes, because the future value of $5,500 i n 5 years at 6% is $7,360.24

D)No, because the present value of $5,500 at 6% annually is $4,109.92

6-Which of the following will create the largest increase in the future value of an investment?

A)A switch from annual compounding to semi-annual compounding

B)A switch from quarterly compounding to daily compounding

C)A switch from semi-annual compounding to quarterly compounding

D)A switch from daily compounding to continuous compounding

7-In general, the intrinsic (or theoretical) value of an asset today is given by:

A)The sum of the future values of the asset's non-uniform cash flows

B) sum of the present values of the asset's uniform future cash flows

C)The sum of the present values of the asset's future cash flows

D)The sum of the future values of the asset's present cash flows

Answer 1

Q-3)

Amount Invested now = $3315

Calculating the Future Value at the end of 9 years:-

Future Value = Invested Amount*(1+r)^n

Where,

r = Periodic Interest rate = 7.34%/2 = 3.67%

n= no of periods = 9 years*2 = 18

Future Value = $3315*(1+0.0367)^18

Future Value = $3315*1.91317974204

Future Value = $6342.19

So, Value at the end of 9 years is $6342.19

Q-5)

Calculating the Present value of $5500 today:-

Present Value = Future Value/(1+r)^n

Where,

r = Periodic Interest rate = 6%

n= no of periods = 5 years

Present Value = $5500*(1+0.06)^5

Present Value  = $5500*1.3382255776

Present Value = $4109.92

Ans- Option D. No, because the present value of $5,500 at 6% annually is $4,109.92

Q-6)

Option D. A switch from daily compounding to continuous compounding

As Future Value is higher when the number of periods of compounding in a year is highest and in continous compounding it is highest.

Q-7)

Ans- Option C. The sum of the present values of the asset's future cash flows

If you need any clarification, you can ask in comments.