Assignment
They can be done with a financial calculator or using the Time-Value of Money Tables.
A. Your mother just received a $250,000 inheritance. If she invests her money ina diversified equity portfolio returning 8 percent per year, approximately howlong will it take her to become a millionaire?
B. Linda Baer has already saved $6,462 to buy a used vehicle. Ignoring taxes andassuming her money is invested in a money market account earning 4 percentcompounded annually, how long will it take to buy a car that costs $8,844?
C. Paul just graduated from college and landed his first "real" job, which pays$33,000 a year. In 10 years, what will he need to earn to maintain the same purchasing power if inflation averages 3 percent?
D. Anthony and Michelle Constantino just got married and received $34,000 in cashgifts for their wedding. How much will they have on their 25th anniversary ifthey place half of this money in a fixed-rate investment earning 6 percent compounded annually? Would the future value be larger or smaller if the compounding period were 6 months? How much more or less would they have earned withthis shorter compounding period?
E. Calculate the future value of $5,000 earning 5 percent after 1 year, assuming annual compounding. Now, calculate the future value of $5,000 earning 5 percentafter 20 years.
F. You and 11 coworkers have just won $12 million ($1 million each) from the statelottery. Assuming that you each receive your share over 20 years and that thestate lottery earns a 4 percent return on its funds, what is the present value ofyour prize before taxes if you request the "up-front cash" option?