1. (TCO 3, 4) If you deposit $2,000 in an account that earns 5% per year, compounded annually, you will have $2,553 at the end of 5 years. What would be the balance in the account at the end of 5 years if interest compounds monthly? 2. (TCO 3, 4) Ten years ago, you put $150,000 into an interest- earning account. Today, it is worth $275,000. What is the effective annual interest earned on the account? 3. (TCO 3, 4) Your friend has a trust fund that will pay him $500,000 at the end of 10 years. Your friend, however, wants his money today. He promises to sign his trust fund over to you if you give him some money today. You require a 20% interest rate on money you lend to friends. How much would you be willing to lend under these terms? 4. (TCO 3, 4) A deposit placed in an interest-earning account earning 8% a year will double in value in ______ years. 5. (TCO 3, 4) At the end of 8 years, your friend wants to have $75,000 saved for a down payment on a house. He expects to earn 8%, compounded monthly, on his investments over the next 8 years. How much would your friend have to put in his investment account each month to reach his goal? 6. (TCO 3, 4) Your friend just won the lottery. He has a choice of receiving $50,000 a year for the next 20 years or a lump sum today. The lottery uses a 15% discount rate. What would be the lump sum your friend would receive? 7. (TCO 3, 4) The future value of $1,000 compounded annually for 9 8. (TCO 3, 4) If you saw a table containing the following factors, what kind of interest factor would you be looking at? 9. (TCO 3, 4) The future value of a single deposit of $1,000 will be greater when this amount is compounded ________ 10. (TCO 3, 4) Begin with a single sum of money at period 0. First, calculate a future value of that sum at 12.01%. Then discount that future value back to period 0 at 11.99%. In relation to the initial single sum, the discounted future value _____ 11. (TCO 3, 4) The future value compound factor given for period (n) at 15% ________. 12. (TCO 3, 4) The interest rate used to compute the present value of a future cash flow is called the ________ 13. (TCO 3, 4) Which one of the following will increase the future value of a lump sum invested today? 14. (TCO 3, 4) A series of equal cash flows that occur at the beginning of each time period for a limited number of time periods is called a(n) ________ 15. (TCO 3, 4) Compound interest is defined as the interest earned
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