Fin 1103 Essay

277 WordsMay 5, 20132 Pages
1. Ben Collins plans to buy a house for $220,000. If that real estate property is expected to increase in value 3 percent each year, what would its approximate value be seven years from now? Solution: $220,000 1.230 = $270,600 (future value of a lump sum payment) 5. What would be the yearly earnings for a person with $8,000 in savings at an annual interest rate of 2.5 percent? Solution: $8,000 .025 = $200 6. Using time value of money tables, calculate the following: a. The future value of $450 six years from now at 7 percent. b. The future value of $800 saved each year for 10 years at 8 percent. c. The amount that a person would have to deposit today (present value) at a 6 percent interest rate in order to have $1,000 five years from now. d. The amount that a person would have to deposit today in order to be able to take out $500 a year for 10 years from an account earning 8 percent. Solution: a. $450 1.501 = $675.45 (future value of a single payment) b. $800 14.487 = $11,589.60 (future value of an annuity) c. $1,000 0.747 = $747 (present value of a single payment) d. $500 6.710 = $3,355 (present value of an annuity) 10. Carla Lopez deposits $3,000 a year into her retirement account. If these funds have an average earning of 9 percent over the 40 years until her retirement, what will be the value of her retirement account? Solution: $3,000 x 337.890 (future value of a series) =

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