BUAD 306 Fall 2015 Professor Cary Frydman Practice Problems 2 Answers Posted September 9th 1 You invest 3 400 in an account that pays 6 percent simple interest How much money will you have at the end of seven years 2 Today you earn a salary of 115 000 What will be your annual salary twelve years from now if you earn annual raises of 1 1 percent 3 You want to have 75 000 saved 10 years from now to buy a house How much less do you have to deposit today to reach this goal if you can earn 6 5 percent rather than 6 0 percent on your savings Today s deposit is the only deposit you will make to this savings account 4 Gerald needs 110 000 as a down payment for a house 7 years from now He earns 1 5 percent on his savings Gerald can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum How much additional money must he deposit if he waits for one year rather than making the deposit today 5 You are comparing two annuities with equal present values The applicable discount rate is 10 percent One annuity pays 2 000 on the first day of each year for 30 years How much does the second annuity pay each year for 30 years if it pays at the end of each year 6 ABC Corp wants to save 1 000 000 to buy some new equipment four years from now The plan is to set aside an equal amount of money on the first day of each quarter starting today The firm can earn an APR of 5 75 percent on its savings How much does the firm have to save each quarter to achieve its goal 7 What is the annual percentage rate on a loan with a stated rate of 4 75 percent per quarter 8 You are going to loan a friend 900 for one year at a 7 percent rate of interest compounded annually How much additional interest could you have earned if you had compounded the rate continuously rather than annually 9 You are considering two loans The terms of the two loans are equivalent with the exception of the interest rates Loan A offers a rate of 7 75 percent compounded daily Loan B offers a rate of 8 percent compounded semi annually Which loan should you select and why
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