Present Value, Future Value, And Interest Review Worksheet
1. Angela deposits $2000 into her bank account today. After 10 years she is expected to have $4317.85 in her bank account. If interests are compounded annually, what would be the interest rate?
2. The maturing value of a fund is $10,000. The term is 6 years at 5% per annum compounded semiannually. What is the present value of the fund?
3. If you plan to invest $1000, which of the following would be the best investment based on the rate of return? Show your calculations.
a. Compounded annually at 7% for 5 years
b. Compounded quarterly at 6.8% for 5 years
c. Compounded monthly at 6.75% for 5 years
4. What is the future value of an investment if $1000 is deposited now, $2000 is deposited two years from now, $4000 is deposited 5 years from now, and the maturity date is 7 years from now? Assume the interest rate is 6% per year compounded annually.
5. What is the difference of the interest in dollar amount if the following investment is calculated using simple interest and compound interest?
Principal: $5000
Time Period: 3 years
Interest rate: 5% /a (compounded annually for compound interest)
6. Paul agreed to pay me $4000 for an investment that is due 5 years from now. The maturity value of the investment is $6250 with terms 10% / a compounded quarterly. Should I accept the offer? Show your calculation.
Answers:
1. 8% per annum
2. $7435.56
3. $1402.55; $1400.94; $1400.11; compounded annually at 7% for 5 years
4. $8674.48
5. $38.13
6. PV = $3814.19; I should accept the offer
