Question

16. Assume that you purchase a 6-year, 8% savings certificate for $1,000. If interest is compounded annually, what will be the value of the certificate when it matures? *

A. $630.17

B. $1,469.33

C. $1,677.10

D. $1,586.87

E. None of the above.

17. Suppose you make 5 annual deposits of $1,000 in a savings account paying 6% compounded annually. The deposits are made at the beginning of each year. What amount would be in your account in year 5? *

A. $6,691.13

B. $5,637.09

C. $1,338.23

D. $5,975.32

E. None of the above.

18. An investor wants to receive $10,000 annually for ten years with the first payment five years from today. If the investor can earn a 14% annual return, the amount that she will have today is closest to: *

A. $27,091.

B. $30,884.

C. $52,161.

D. $40,000.

E. None of the above.

19. Five years ago, an investor borrowed $5,000 from a financial institution that charged a 6% annual interest rate, and he immediately took his family to live in Nepal. He made no payments during the time he was away. When he returned, he agreed to repay the original loan plus the accrued interest by making five end-of-year payments starting one year after he returned. If the interest rate on the loan is held constant at 6% per year, what annual payment must the investor make in order to retire the loan? *

A. $1,338.23.

B. $1,588.45.

C. $1,638.23.

D. Cannot be determined.

E. None of the above.

20. Three years from now, an investor will deposit the first of eight $1,000 payments into a special fund. The fund will earn interest at the rate of 5% per year until the third deposit is made. Thereafter, the fund will return a reduced interest rate of 4% compounded annually until the final deposit is made. How much money will the investor have in the fund at the end of ten years assuming no withdrawals are made? *

A. $8,872.93.

B. $9,251.82.

C. $9,549.11.

D. Cannot be determined.

E. None of the above.

Answer 1

Based on the given data, pls find below workings, formulae and answers:

Q 16: Answer D = $ 1586.87

Q 17: Answer D = $ 5975.32

Q 18: Answer B = $ 30884 (Step 1, to calculate the value (PV) at the end of Year 5 and then as step 2, using the same PV at Year 5 as FV, need to calculate the PV as of today)

Q 19: Answer B = $ 1588.45 (Step 1, to calculate the value (FV) at the end of Year 5 (Today) and then as step 2, using the same FV at Year 5 (today) as PV, need to calculate the PMTs for next five years)

Q 20: Answer E = None of the Above; The actual value is $ 9226.88 (Step 1, to calculate the value (FV) at the end of Year 2 (From two yeas from now) and then as step 2, using the same FV as PV, need to calculate the Future Value at the end of Year 10 (6 years) at reduced interest; Similarly, from need to calulate additional FV on the deposits made for 6 years at reduced interest.