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# Assignment Finance

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Shawn wants to buy a new telescope. He estimates that it will take him one year to save the money and that the telescope will cost \$200. 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 5. 00 Correct, You know it has to be less than \$200. Total 5. 00 Simple UP calculation. Question 4 5. 00 / (10 points) Jeff has \$1 ,000 that he invests in a safe financial instrument expected to return 3% annually.

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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 Score Explanation Jeff; 1806 Jeff; 1935 Jeff; 1604 Marge; 1935 Correct 10. 00 Correct. You know how to calculate Fps! Marge; 1604 Marge; 1806 Total 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 Question 5 (10 points) Your dad invested \$25 for you in 1942 in a fund and you have not withdrawn any money since.

F the fund has averaged a return of 8 percent over he 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 10. 00 Correct. You know how to accurately calculate IF. Total 10. 00 / 10. 00 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) Briquette’s grandparents opened a savings account for her and placed \$500 in the account. The account pays 3. % interest. Bridget wants to be a Niger 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 without the \$ sign or a comma; round to the nearest whole dollar. ) Answer for Question 6 198 Correct 10. 00 Correct. You know that it has to be more than \$150, and actually by at least \$42. Total Again a simple IF calculation, but need to read the question carefully to save time and calculate it only once.

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 6% per year. They recently heard about a plan to pre-pay tuition at current rates, that is pay \$9,500 per year of college. Should they pre-pay School’s first year now or keep the money invested and pay the tuition 7 years from now?

How much are they saving in REV’ terms with this decision? Your Answer Score Explanation Pre-pay; 781 Don’t prepay; 781 Don’t Pre-pay; 685 Pre-pay; 970 Correct 10. 00 Correct decision, and correct calculation. Pre-pay; 685 Don’t Pre-pay; 970 How to properly calculate the difference in two future values. Question 8 (15 points) Ralph knows that he is going to have to replace his roof soon. If he has 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. Hint: This s also known as the break-even point. Exact calculation up to two decimals is not difficult. If stuck, trial and error will help. (No more than two decimals in the percentage interest rate but do not enter the % sign. ) Answer for Question 8 14. 87 Correct 15. 00 Correct. This is just by trial and error. You can solve using fifth root to get exact solution.. Total 15. 00/ 15. 00 This is UP or IF problem, depending on how you solve it. Exact calculation is not difficult. For those using excel, it is easiest to use the goal seek function in the data tab.

Question 9 15 points) Rondo is in the market for a new car. He has narrowed his search down to 2 models. Model A costs \$32,000 and Model B costs \$28,000. With both cars he plans to pay cash and own them for 4 years before trading in for a new car. His research indicates that the trade in value for Model A after 4 years is of the initial purchase price, while the trade in value for Model B is 45%. The interest rate is 5%. For simplicity assume that operating and maintenance costs for the models are identical. Which model is the better decision and how much “cheaper” is it than the alternative?

Your Answer Score Explanation Model A; CorrecText 15. 00 Right decision, and right calculation based on net costs. Model B; 1430 Model B; 1207 Model A; 4000 Model A; 1257 Model B; 4000 Question 10 (15 points) Christine is a new homebred. She wants to make sure that she incorporates the cost of maintenance into her decision. She estimates that routine repairs and maintenance on the home she is considering will be \$1 ,590 in the first year (one year from now). Due to the increasing age of the home, she expects that maintenance costs will increase 6% annually.

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