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) Answer for Question 3 You entered: 189 Correct, You know it has to be less than $200. Simple UP calculation. Question 4 (10 points) Jeff has $1 ,OHO 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. Who has more after 20 years? And how much does he/she have in IF terms? Your Answer
Jeff; 1935 Marge; 1935 10. 00 Correct. You know how to calculate Fps! Marge; 1806 Jeff; 1604 Marge; 1604 Jeff; 1806 10. 00 / 10. 00 IF calculations of simple one-shot cash flows. Shows power of compounding. Question 5 (10 points) Your dad invested $25 for you 70 years ago in a fund and you have not withdrawn any money since. If the fund has averaged a return of 8 percent over the last 70 years, what is the current value of that investment? (Round to the nearest whole dollar; enter just the number without the $ sign or a comma) Answer for Question 5 5465 Correct.
You know how to accurately calculate IF. Simple IF calculation. The amount has to be at least $165 even if you ignore compounding because so many years have passed.
Question 6 (10 points) Cindy and Jennifer are twin sisters. They both have a $10,000 investment earning 7%. Cindy withdraws $2,000 of her money now and goes on a shopping spree. Jennifer keeps all her money invested. After 15 years, when each are looking for money to put a down payment on a house, how much more does Jennifer have? (Enter just the number without the $ sign or a comma; round to the nearest whole dollar.) Answer for Question 6: 5518 Correct, you know how to calculate the difference in two Eves or figured out that only one IF need to be calculated in this specific case. Total Difference in Future Values or future value of a difference?
Question 7 (10 points) Joe is getting ready to buy a car. He has $20,000 in investments earning 4.9% annually. The car also costs $20,000. If he doesn’t pay cash for the car, Joe can get a loan at 2.9% interest for 5 years.
The balloon payment covers both the principal and the interest accumulated over a 5-year period. If Joe decides to take the loan, will he have enough funds available from his investments to make the balloon payment? Additionally, how much will he be short or have in excess? The answer is yes; Joe will have 2331 units of currency. This decision is correct, as well as the calculation. However, there are also other possible outcomes. The answer could be yes with 2082 units, or no with 5404 units or no with 2331 units. Another option is no with 2082 units. It is important to understand how to accurately calculate the difference between two future values. For Question 8 (15 points), Ralph is aware that he will need to replace his roof in the near future and it will cost $10,000 if he proceeds with the replacement now.
The break-even point is when he waits for 5 years, it will cost him $20,000. The calculation up to two decimals is not difficult. If stuck, trial and error can help. The answer for Question 8 is 14.87% or 15.00%. This can be solved using the fifth root to get the exact solution.
The problem can be categorized as an “UP or IF” problem, depending on the approach used. The calculation itself is not overly complex. If you are using Excel, the simplest way is to utilize the goal seek function in the data tab. Question 9 (worth 15 points) involves Rondo’s search for a new car. He has narrowed it down to two models – Model A, which costs $32,000, and Model B, priced at $28,000. Rondo intends to pay for both cars with cash and keep them for 4 years before trading them in for a new vehicle. His research indicates that after 4 years, the trade-in value for Model A equals its initial purchase price of 100%, while the trade-in value for Model B is set at 45%.
The interest rate is 5%. Determine which model is the better decision and how much cheaper it is compared to the alternative. Your Answer Model A; 1430 Right decision, and right calculation based on net costs. Model A; 1257 Model B; 1207 Model B; 1430 Model B; 4000 Model A; 4000 15.00/15.00
Question 10 (15 points) College tuition has been increasing at a rate of 7% per year. Currently, the average tuition of a state college is $9,500/year. Andresen’s son Tremor will start college in 12 years.
