Reference no: EM131299600

In Question with an A and B part, explain what you learn from the difference

1. If you deposit $20,000 today in a Certificate of Deposit and earn 3% annual interest, how much will you have in 8 years?

2. Melanie will receive a graduation gift of $5,000 from her parents in 3 years. If the discount rate is 4%, what is the gift worth today?

3a. Liz received a life insurance payout from her grandmother in the form of an annuity. She will get $25,000 per year for the next 30 years. How much is that worth today if the current long term interest rate is 3.5%? This is an ordinary annuity.

3b. If Interest rates rise to 6%, what will be the value today of the annuity in 3 a?

4a. You deposit $5,000 into an IRA account that invests in long term U S Treasury Bonds. Current Interest rates for the 20 year bond are 2.75%. How long will it take to double your money?

4b. How long will it take to triple your money at 2.75%?

5a. The Woods have $60,000 to use as a down payment on a house, and they want to borrow $240,000 to buy a house for $300,000. The current annual mortgage interest rate is 3.5%. What will their monthly payment be for a 30 year loan that has equal monthly payments. They will owe zero at the end of the mortgage.

5b. Mrs. Woods sees an advertisement for a 15 year loan at a rate of 2.75%. What would be the monthly mortgage payment if they borrow $240,000 at this lower interest rate?

6. Tim paid $250 per month into his 401K retirement plan. After 30 years, he had accumulated $500,000. What average annual rate of interest had he earned over the 30 years?

7. For the year that ended in January 2000, Wal-Mart had revenues of $165 billion. For the year ended in January 2012, it had revenues of $447 billion. What has been the average compound growth rate?

8a. Deniece has accumulated $50,000 in her thrift savings plan at her job at the Federal Aviation Administration. The government puts in 1% of her pay and matches up to another 4% if she puts in 5% out of her pay. Deniece earns $80,000 a year and plans to add 5% from her income plus the agency 5% for a total of $8,000 per year. Her cousin Eugene says that if she invests in stocks, she can earn 12% per year because that has been the long term history. How much will she have in 25 years at retirement if she can earn 12% per year compounded annually?

8b. Deniece's friend Marshall heard a speech by John C. (Jack) Bogle, founder of The Vanguard Group of Mutual Funds, one of the lowest cost and most successful group of funds. Jack said that with the increasing need to reduce carbon emissions, it is unlikely that long term stock returns can exceed 6% per year. Steps to reduce carbon will likely reduce prospects for economic growth in Mr. Bogle's opinion. How much will Deniece have if Jack Bogle is correct and the earnings will be 6% per year compounded annually?

9. Christina hopes to open a Deli in 2015. The initial investment will be $85,000. She expects that that the Deli will generate the positive cash flow as indicated below. If she can borrow money at 7% per year, what will be the Net Present Value? Use 7% as the discount rate.
Year Cash Flow
2016 $22,000
2017 $24,000
2018 $29,000
2019 $30,000
2020 $31,000
2021 $27,000
2022 $22,000
2023 $15,000
2024 $12,000

Be sure to explain what you do in words.
Also, tell what the answer means.
In problems with both part a and part b, compare the two answers.
In each case, you should be able to do part b if you can do part a.