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# Simple Future Value Calculation

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1. Question 1 (5 points) \$100 today is worth the SAME as \$100 tomorrow. Your Answer Score Explanation 5. 00 Correct. You understand time value True False Total 5. 00 / 5. 00 Question Explanation We have assumed that the time value of money is positive.
2. Question 2 (5 points) \$100 invested for 10 years at 12% interest is worth more in Fetters than \$200 invested for 10 years at 4% interest. Correct. You know the mechanics for calculating IF. All about compounding.
3. Question 3 (5 points) Shawn wants to buy a new telescope. He estimates that it will take him en year to save the money and that the telescope will cost 0.

At an interest rate of 6%, how much does Shawn need to set aside today to purchase the telescope in one year? (Enter just the number without the \$ sign or a comma) You entered: 189 Correct, You know it has to be less than \$200. Simple UP calculation.

4. Question 4 (10 points) Jeff has \$1,000 that he invests in a safe financial instrument expected to return 3% annually. Marge has \$500 and invests in a more risky venture that is expected to return 7% annually.
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Who has more after 20 years? And how much does he/she have in IF terms? Your Answer 10. 0 Correct. You know how to calculate Fps! Jeff; 1935 Marge; 1604 Marge; 1935 Jeff; 1806 Jeff; 1604 Marge; 1806 10. 00 / 10. 00 IF calculations of simple one-shot cash flows. Shows the power of compounding.

5. Question 5 (10 points) Don has just received a cash gift of \$50,000 from his rich eccentric uncle. He wants to set it aside to pay for his daughter Cynthia’s college education. Cynthia will begin college in 10 years and Don’s financial advisor says that she can earn 7% interest on an investment in a special college fund. How much will Don have in the fund when Cynthia begins college? (Enter just the number thou the \$ sign or a comma; round to the nearest whole dollar. You entered: 98358 Correct. You know how to accurately calculate IF. Simple future value calculation. The amount has to be at least \$85,000 even if you completely ignore compounding.
6. Question 6 (10 points) Briquette’s grandparents opened a savings account for her and placed \$500 in the account. The account pays 3. 5% interest. Bridget wants to be a singer and she has her heart set on a new karaoke machine. The machine costs \$150. How much less will the account be worth in 8 years if she buys the karaoke machine now versus leaving the account untouched? Enter just the number 198 You’re Correct. You know that it has to be more than \$150, and Answer actually by at least \$42. 10. 00 / Again a simple IF calculation, but need to read the question carefully to save time and calculate it only once.
7. Question 7 (10 points) The Johnson family is worried about their ability to pay college tuition for their daughter Chloe. Tuition rates are currently \$9,500 per year at the state college and have been increasing at a rate of 7% annually. Chloe will begin college in 7 years. The Johnny’s have \$9,500 set aside now in a college plan that will earn % per year. They recently heard about a plan to pre-pay tuition at current rates, which is to pay \$9,500 per year of college. Should they prepay School’s first year now or keep the money invested and pay the tuition 7 years from now? How much are they saving in IF terms with this decision? The correct decision, and correct calculation. Pre-pay; 781 Pre-pay; 685 Don’t Pre-pay; 685 prepay; 970 Don’t Pre-pay; 970 Don’t Pre-pay; 781 How to properly calculate the difference in two future values.
8. Question 8 (15 points) Ralph knows that he is going to have to replace his roof soon. If he as the roof replaced now, it will cost \$10,000. He could wait 5 years, but it will then cost him \$20,000. At what rate will these options cost the same. This is also known as the break-even point. Exact calculation of up to two decimals is not difficult. If stuck, trial and error will help. (Enter the answer with no more nor less than two decimal places, and leave off the % sign. For example, if your answer is 13. 97% you should enter it as 13. 97 NOT O. 14 nor 14) You entered: 1487 15. 00 Correct. This is just by trial and error. You can solve using the fifth 14. 87 roots to get the exact solution.. 5. 0 / This is UP or IF problem, depending on how you solve it. The exact calculation is not difficult. For those using excel, it is easiest to use the goal seek function in the data tab.
9. Question 9 (15 points) Jessica is in the market for a new car. She has narrowed her search down to 2 models. Model A costs \$20,000 and Model B costs \$18,000. With both cars, she plans to pay cash and own them for 5 years before trading in for a new car. Her research indicates that the trade-in value for Model A after 5 years is 50% of the initial purchase price. The trade-in value for Model B is 25%. Jessica has o emotional attachment to either model and wants to make a strictly financial decision. The interest rate is 6%. For simplicity assume that operating and maintenance costs for the models are identical every year. Which model is the better decision and how much “cheaper” is it than the alternative? Model B; 2110 Model A; 2365 Model B; 2365 Model A; 2110 Correct choice, correct calculation. Model A; 2000 Model B; 2000 15. 00/ 15. 00 This a two-step UP decision taking into account the net costs of both cars.
10. Question 10 (15 points) College tuition has been rising at a rate of 7% per year.

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