NAME______
BANNER ID ______
SECTION ______
FIN 3013 — PRINCIPLES OF BUSINESS FINANCE
SUMMER 2006
LAB ASSIGNMENT #4
Round your final answers to two decimal places. Place your final answer on the space provided for each question. Show your work below each problem.
______1.You received $100 in your seventh birthday. The money was placed on a savings account earning 4% interest. How much will you have in the account on your 21st birthday if you don’t withdraw any money before then?
______2.What is the future value of $4,500 received today if it is invested at 7.5% compounded annually for twenty years?
______3.Your grandfather placed $6,000 in a trust fund for you. In 12 years the fund will be worth $15,000. What is the rate of return on the trust fund?
______4.You have won a contest and will receive $250,000 in 10 years. You can invest the money today at 5% compounded annually. What is the present value of your winnings?
______5.Your great aunt purchased a painting 60 years ago for $50. Today the painting is worth $1,500. What is the rate of return on your aunt’s painting investment?
______6.You need $2,500 to buy a new stereo for your car. If you have $1,200 to invest at 5% compounded annually, how long will you have to wait to buy the stereo?
______7.You just won the lottery and want to put some money away for your child’s college education. College will cost $120,000 in 15 years. You can earn 6% compounded annually. How much do you need to invest today?
______8.Assume that 27,000 students currently attend UTSA. If the enrollment increases at a rate of 5% a year for the next ten years, how many students will be enrolled at UTSA in ten years?
______9.At a 4.5% rate of interest, how long does it take to double your money?
______10.Your grandparents have agreed to pay half the price of a vacation for you when you graduate from college. You will graduate and take the vacation 2 years from now. You have $1,000 to invest today and can earn 5.25% on the funds to pay for your portion of the trip. If your grandparents match the amount of money you have in two years, what is the maximum amount you can spend on the vacation?
______11.Your grandfather placed money in an account so that you can withdraw $2,000 at the end of each year for the next twenty years. If the account pays interest at a rate of 8% compounded annually, how much must there be in the account today in order for the account to reduce to a balance of zero after the last (twentieth) withdrawal?
______12.Martin has charged $6,000 on his credit card, which has an interest rate of 18%, compounded monthly. If Martin makes monthly payments $100 (and makes no additional charges on his credit card), how long will it take before Martin has paid off his credit card debt?
______13.Linda borrows $10,000 from her older brother. She agrees to make weekly payments for 5 years, beginning one week after she takes out the loan. The stated rate on the loan is 8%. How much will each weekly payment be?
______14.Roadrunner Bank is offering a savings account that pays 6.2% interest compounded quarterly. Coyote Bank is offering a savings account that pays 5.9%, compounded monthly. If you have $1,000 to place in a savings account, which bank would you choose and why?
______15.Juan has just won the $1,000,000 lottery! He will receive $500,000 immediately and $50,000 at the end of each of the next 10 years. Assuming a discount rate of 6.25%, how much has Juan actually won?
______16.Chesapeake Investments is offering an annuity that will pay you $10,000 at the end of each year for the next 20 years. If the appropriate discount rate is 6%, how much would you pay for this annuity?
______17.Jake just received an inheritance of $200,000. His broker has suggested that Jake use the $200,000 to purchase an annuity so that he can receive cash flows of $20,000 a year for the next 20 years. What rate of return would Jake be earning on his investment?
______18.As a settlement in a legal dispute, U.S. Medical Corp. has agreed to pay you and your heirs $1,000 a year forever, beginning one year from now. What is the present value of this settlement at a 6% discount rate?
______19.What is the total present value of $800 received in one year; $1,200 received in two years; and $1,600 received in five years if the discount rate is 7.5%?
______20.Victoria is saving for retirement by placing $75 in a savings account every month. If Victoria earns 6.5%, compounded monthly, on her savings account and makes these payments for 40 years, how much will she have in the account after 40 years?
______21.At the end of each of the past 18 years, Alexis’s grandparents have been placing $1,000 in a savings account paying 6.5% interest to help Alexis pay for college. Now that Alexis is ready to start college, how much money is in the account?
______22.Finance majors are in big demand! Now that you have graduated, Bank of Al & Mo is offering you a three-year contract. This contract states that you will receive an immediate signing bonus of $25,000. You will receive a $50,000 salary at the end of the first year, $75,000 the next, and $150,000 at the end of the third year. Assuming a 6 percent discount rate, what is the value of this package?
______23.You are considering an investment that will pay you $1,000 a month for the next 30 years. At a 5.5% discount rate, compounded monthly what is the most you would pay for this investment?
______24.You need $136 to buy books for your marketing class. Your brother offers to lend you the money today if you pay him $140 in two weeks when you get your paycheck. What is the APR on the loan your brother is willing to make? What is the EAR?
______25.Tristan is borrowing $27,500 from his parents to make a down payment on a house. He is going to repay the loan by making equal annual payments for the next 15 years. If his parents charge him an interest rate of 6 percent per year, how much will each of his payments be?