FIN 100 chp 9 part 2

Finance

Name

Instructor

E1. Go to the Federal Reserve Web Site, http://www.federalreserve.gov. Go to “Economic Research and Data,” and access “Recent Statistical Releases” and the “Consumer Credit.” Find average interest rates charged by commercial banks on new automobile loans, personal loans, and credit card plans.

P7. Determine the present value if $15,000 is to be received at the end of eight years and the discount rate is 9 percent. How would your answer change if you had to wait six years to receive the $15,000?

1. Compare the average level of interest rates among the three types of loans.
2. Auto: 4.31
3. Personal: 9.69
4. Credit Card: 12.04
5. Access “Historical Data” and then “Consumer Credit”, and compare trends in the cost of consumer credit provided by commercial banks over the past three years.
6. It continually rises each year.
7. P2. Find the future value $10,000 invested now after five years if the annual interest rate is 8 percent.
   • What would be the future value if the interest rate is a simple interest rate?
   • Amount = Principle + Interest
   • Amount = $10,000 + (10,000 x 5 x 8)/100
   • Amount = $10,000 + $4000
   • Amount = $14,000
   • What would be the future value if the interest rate is a compound interest rate?
   • Amount = P(1 + (R/n))^nt
   • Amount = $10,000(1 +8/(1 x 100))^ 1 x 5
   • Amount = $10,000(1 + 0.08)^5
   • Amount = $10,000(1.08)^5
   • Amount = $10,000 x 1.469
   • Amount = $14,693.28
   • P3. Determine the future value if $5,000 is invested in each of the following situations:
   • 5 percent for ten years
   • Simple Interest: $5000 + $5000(0.05)(10)= $7500
   • Compound Annually: $5000(1.05)^10= $8144.47
   • 7 percent for seven years
   • Simple Interest: $5000+$5000(0.07)(7)= $7450
   • Compound Annually:$5000(1.07)^7= $8028.91
   • 9 percent for four years
   • Simple Interest:$5000+$5000(0.09)(4)=$6800
   • Compound Annually: $5000(1.09)^4= $7057.91
   • P4. You are planning to invest $2500 today for three years at a nominal interest rate of 9 percent with annual compounding.
   • What would be the future value of your investment?
   • $2500(1.09)^3= $3237.57
   • Now assume that inflation is expected to be 3 percent per year over the same three-year period. What would be the investment’s future value in terms of purchasing power?
   • 9%-3%=6%
   • The future value would be $2500(1.06)^3= $2977.54
   • What would be the investment’s future value in terms of purchasing power if inflation occurs at a 9 percent annual rate?
   • 9%(interest) – 9%(inflation)= 0% purchasing power
   • $2500(1+0.00)^3= $2500
   • P5. Find the present value of $7,000 to be received one year from now assuming a 3 percent annual discount interest rate. Also calculate the present value if the $7,000 is received after two years.
   • PV of $7,000 paid in one year at a 3% discount: $7,000/1.03= $6,796.12
   • P6. Determine the present values if $5,000 is received in the future (i.e at the end of each indicated time period) in each of the following situations:
   • 5 percent for ten years
   • $5000(0.614)= $3070
   • 7 percent for seven years
   • $5000(0.623)= $3115
   • 9 percent for four years
   • $5000(0.708)= $3540

   $15,000 received at the end of 8 years:

   $15,000(.502)= $7,530

   $15,000 received at the end of 6 years:

   $15,000(.596)= $8,940

   P16. Use a financial calculator or computer software program to answer the following questions.

   P17. Use a financial calculator or computer software program to answer the following questions.

   1. What would be the future value of $15,555 invested now if it earns interest at 14.5% for seven years?
   2. $40,133.62
   3. What would be the future value fo $19,378 invested now if the money remains deposited for eight years and the annual interest rate is 18 percent?
   4. $72,839.17

   P19. Use a financial calculator or computer software program to answer the following questions.

   1. What is the present value of $359,000 that is to be received at the end of 23 years if the discount rate is 11 percent?
   2. $32,558.62
   3. How would your answer change if (a) if the $359,000 is to be received at the end of 20 years?
   4. $44,528.17