Question

You put $5,000 into an account that pays 3% annual interest. Interest is compounded monthly. You keep this money in the account for 10 years. How much money will you have?

		$750
		$6,746
		$5.750
		$6,720
		$8,144

Ali buys his wife a valuable piece of jewelry (diamond necklace) for $30,000. He purchases it using $25,000 from his savings account and a $5,000 loan. How does this purchase affect Ali's personal balance sheet? Choose the most correct answer.  

		a. His assets increase.
		b. His liabilities increase.
		c. His net worth stays the same.
		a and b
		a, b and c

Mohammed and Divya are married. Mohammed puts $3,000 into his retirement plan each year. Divya puts $4,000 into her retirement plan. They each average earning 7% per year for the next 40 years. At the end of 40 years, ABOUT how much money will they have saved together?

		$280,000
		$600,000
		$1,400,000
		$800,000
		$850,000

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David gets a job for $50,000. If he gets a 5% raise each year for 6 years, what will his salary be?

		67,000
		65,000
		73,000
		55,000
		69,000

Which of the following receive an extra $1650 per year in addition to their standard deduction?

		a. Children under 17 years of age
		b. Old People (age 65 or over)
		c. Blind People
		d. Deaf People
		e. Answers b, and c above

Answer 1

a. As we have put $5,000 and get 3% interest per year compounded monthly.

So every month 3%/12 would be added to the principal and would be compounded 120 times. So

5000 * ( 1 + 0.03/12)^120

= 5000 * (1.0025)^120

= 5000 * 1.349353547

= $ 6,746.76

Option 2 $ 6476

b.

As he has purchased the gift he has used the cash $ 25,000 and taken a loan of $5000 to buy asset of $30,000 which reduces cash by $25000 and increases liabilities by $ 5000 thus it increases the assets and liabilities. Now here the assets have only increased by $5000 and liabilities by $5000 thus it does not affect net worth.

Thus options a,b and c are all correct

c. The question is bit confusing as Mohammed is paying every year while it is not clear for Divya. We will assume both Mohammed and Divya are paying yearly

Wel have annuity of $ 7000 depositing every year. So

For Mohammed

FV = P * (((1+r)^n) -1 )/r

P = Periodic Payment = 7000

r = Rate of Interest = 7%

n = No of periods = 40

FV = 7000 * (((1+0.07)^40)-1)/0.07

= 7000 * (13.9744578392)/0.07

= 13,97,445.78 Nearest value $ 1400000

d. if David's salary $50000 increases 5% every years for 6 years then

FV = P * ( 1+R)^n

P = 50000

R = 5%

n = 6 years

FV = 50000*(1+0.05)^6

= 67,004.78

Nearest option is $ 67000 Option 1