Finance Problems Worksheet
1. William wants to have a total of $4000 in two years so that he can put a hot tub on his deck. He finds an account that pays 5% interest compounded monthly. How much should William put into this account so that he’ll have $4000 at the end of two years? ($3,620.10)
2. Suppose William, from our last example, only has $3500 to invest but still wants $4000 for a hot tub. He finds a bank offering 5.25% interest compounded quarterly. How long will he have to leave his money in the account to have $4000? (2.68 years)
3. Kelly plans to put her graduation money into an account and leave it there for 4 years while she goes to college. She receives $750 in graduation money that she puts it into an account that earns 4.25% interest compounded semi-annually. How much will be in Kelly’s account at the end of four years? ($896.12)
4. ABC Bank is offering to double your money! They say that if you invest with them at 6% interest compounded quarterly they will double your money. If you invest $1500 in the account, how long will it take to double your money? (11.64 years)
5. Peggy’s employer has loaned her $5000 to pay for university course tuition and textbooks. The interest rate of the loan is 2.5% compounded monthly, and the loan is to be paid back in one payment at the end of 2 years. How much will Peggy have to pay back? ($5,256.08)
6. How much was invested at 4% compounded semi-annually for 3 years if the final amount was $7500? ($6,659.79)
7. What annual interest rate was charged if an $800 credit card bill grew to $920.99 in 6 months and interest was compounded monthly? (28.50%)
8. If I invested $4000 in an account paying 5% interest compounded monthly, how many years will it take for investment to growth to $6000? (8.13 years)
9. If you buried $50 in your yard 13 years ago because you feared Y2K, what would that money now be worth in today’s dollars if inflation was 5% per annum? ($26.52)
10. If the annual inflation rate is 2%, what would $1,000 be worth back in the year 1962? ($371.53)
11. Jim makes a deposit of $12,000 in a bank account. The deposit is to earn interest annually at the rate of 9 percent for seven years.
a. How much will Jim have on deposit at the end of seven years? ($21,936.47)
b. Assuming the deposit earned a 9 percent rate of interest compounded quarterly, how much would he have at the end of seven years? ($22,374.54)
c. In comparing parts (a) and (b). Which alternative is better?
12. An investor can make an investment in a real estate development and receive an expected cash return of $45,000 after six years. Based on a careful study of other investment alternatives, she believes that an 18 percent annual return compounded quarterly is a reasonable return to earn on this investment. How much should she pay for it today? ($15,646.66)