Question

1.

Tom is planning to invest the following amounts at 4 percent interest. How much money will he have saved at the end of year 3?

End of year:	Amount saved:
1	$500
2	$800
3	$900

   

Group of answer choices

$2,200.00

$2,238.47

$2,272.80

$2,309.16

$2,363.71

2.

Which of the following statements is false?

Group of answer choices

A dollar today is worth more than a dollar tomorrow.

A safe dollar is worth more than a risky dollar.

For a given r (or I), as t (or N) increases, PV increases.

An ordinary annuity and a perpetuity are both a series of equal payments.

Only three of the four statements above are true.

Answer 1

Q-1)

Cashflow at year end 1(CF1) = $500

Cashflow at year end 2(CF2) = $800

Cashflow at year end 3(CF3) = $900

Calculating the Future Value saved at the end of year 3:-

Future Value = CF1(1+r)^(2) + CF2(1+r)^(1) + CF3(1+r)^(0)

Future Value = $500*(1+0.04)^2 + $800*(1+0.04)^1 + $900*(1+0.04)^0

Future Value = $540.8 + $832 + $900

Future Value = $2272.80

So, money will he have saved at the end of year 3 is $2272.80

Option 3

Q-2) Ans- Option 3. For a given r (or I), as t (or N) increases, PV increases.

As when for a given r and t increases, the Present value(PV) Decreases rather than increases.