964 Words4 Pages

4-5 Multiyear Future Value How much would be in your savings account in eight years after depositing $150 today if the bank pays 8 percent per year? (LG4-3)
FV8 = 150 × (1 + 0.07)8
150 × 1.71818618 Answer: 257.73
4-7 Compounding with Different Interest Rates A deposit of $350 earns the following interest rates: a. 8 percent in the first year. b. 6 percent in the second year. c. 5 percent in the third year. What would be the third year future value? (LG4-3)
FV = 350 × (1 + 0.08) (1 + 0.06) (1 + 0.05)
350 × 1.08 × 1.06 × 1.05
Answer: 420.71
4-8 Compounding with Different Interest Rates A deposit of $750 earns interest rates of 10 percent in the first year and 12 percent in the second year. What would be the second year future value? (LG4-3) FV = 750 × (1 + 0.10) (1 + 0.12)
750 × 1.10 × 1.12
Answer: 924.00
4-11 Present Value What is the present value of a $1,500 payment made in six years when the discount rate is 8 percent? (LG4-4)
PV = 1500/(1+0.08)6
1500/1.586874323
Answer: 945.25
4-13 Present Value with Different Discount Rates Compute the present value of $1,000 paid in three years using the following discount rates: 6 percent in the first year, 7 percent in the second year, and 8 percent in the third year. (LG4-4) PV = 1000 / ((1 + 0.06) (1 +0.07) (1 + 0.08)) 1000/ (1.06 × 1.07 × 1.08) 1000/1.224936 Answer: 816.37
4-16 Rule of 72 Approximately how many years are needed to double a $500 investment when interest rates are 10 percent per year? (LG4-6)
N=72 / 10
Answer: 7.2
4-31 Solving for Time How many years (and months) will it take $2 million to grow to $5 million with an annual interest rate of 7 percent? (LG4-8)
$5 million = $2 million × (1 + 0.07)N
(1.07)N = 5,000,000/2,000,000
LN (1.07)N = LN 2.5
N × LN 1.07 = LN2.5
N = LN 2.5/ LN 1.07 = 0.916290732/0.067658648 =

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