4-1. You decide to invest 1000,000 in a program that is guaranteed to grow by 2.5% for each of the next 5 years. At the end of the 5 years how much is the investment worth? Answer: 13,141.08 PV 1000,

4-1.  You decide to invest 1000,000 in a program that is guaranteed to grow by 2.5% for each of the next 5 years. At the end of the 5 years how much is the investment worth? Answer: 13,141.08 PV 1000,000 x (1+2.5) n5

4-2.  What is the effective annual rate of an investment that pays 6% for 5 years compounded semiannually? Answer:  34,935.35 A= P +1 P= 1000,000 I = 34,935.35

4-3.  What is the present value of a single cash flow of 25,000 received at the end of 10 years if we assume a discount rate 5% annually?  With a discount rate of 7%? At the end of 10 years at 5% discount rate = 15,347.83 and 7 years +12,708.73 discount rate where PV= present value 25,000.00 FV= Future value in time period n= number of years 10 i= interest rate (discount).

4-4.  Suppose you deposit $100 in a savings account that compounds annually at 2%.  After 1 year at this rate, the bank changes its rate of compounding to 1.5% annually.  Assuming the compounding rate does not change for 4 additional years, how much will your account be worth at the end of 5-year period? Answer: Fvn = PV (1 + i)n

                                                                       FV Year =  100 = 110.00

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