Case 1
FNBSLW 344

Instructions:
1.
Answer all the questions clearly. Draw
timelines where appropriate and show your work. If you use your calculator,
write down the appropriate keystrokes.
2.
For hand-written solutions, make sure
that they are legible and clear.

1.
(a) What is the future value of an
initial \$100 after 3 years if it is invested in an account paying 10 percent
annual interest?
(b) What is the
present value of \$100 to be received in 3 years if the appropriate interest
rate is 10 percent?

2.
(a) What is the future value of a 3-year
ordinary annuity of \$100 if the appropriate interest rate is 10 percent?
(b) What is the present
value of the annuity?
(c) What would the
future and present values be if the annuity were an annuity due?

3.
Suppose
someone offered to sell you a note that would pay \$1,000 fifteen months from
today. They offer to sell it to you for
\$850. You have \$850 in a bank time
deposit that pays 6.76649 percent nominal rate with daily compounding, which is
a 7 percent effective annual interest rate, and you plan to leave the money in
the bank unless you buy the note. The
note is not risky- you are sure it will be paid on schedule. Should you buy the note? Check the decision
in three ways: (a) by comparing your future value if you buy the note versus
leaving your money in the bank, (b) by comparing the PV of the note with your
current bank account, and (c) by comparing the EAR on the note versus that of
the bank account.

Case 1
FNBSLW 344

Instructions:
1.
Answer all the questions clearly. Draw
timelines where appropriate and show your work. If you use your calculator,
write down the appropriate keystrokes.
2.
For hand-written solutions, make sure
that they are legible and clear.

1.
(a) What is the future value of an
initial \$100 after 3 years if it is invested in an account paying 10 percent
annual interest?
(b) What is the
present value of \$100 to be received in 3 years if the appropriate interest
rate is 10 percent?

2.
(a) What is the future value of a 3-year
ordinary annuity of \$100 if the appropriate interest rate is 10 percent?
(b) What is the present
value of the annuity?
(c) What would the
future and present values be if the annuity were an annuity due?

3.
Suppose
someone offered to sell you a note that would pay \$1,000 fifteen months from
today. They offer to sell it to you for
\$850. You have \$850 in a bank time
deposit that pays 6.76649 percent nominal rate with daily compounding, which is
a 7 percent effective annual interest rate, and you plan to leave the money in
the bank unless you buy the note. The
note is not risky- you are sure it will be paid on schedule. Should you buy the note? Check the decision
in three ways: (a) by comparing your future value if you buy the note versus
leaving your money in the bank, (b) by comparing the PV of the note with your
current bank account, and (c) by comparing the EAR on the note versus that of
the bank account.

Case 1
FNBSLW 344

Instructions:
1.
Answer all the questions clearly. Draw
timelines where appropriate and show your work. If you use your calculator,
write down the appropriate keystrokes.
2.
For hand-written solutions, make sure
that they are legible and clear.

1.
(a) What is the future value of an
initial \$100 after 3 years if it is invested in an account paying 10 percent
annual interest?
(b) What is the
present value of \$100 to be received in 3 years if the appropriate interest
rate is 10 percent?

2.
(a) What is the future value of a 3-year
ordinary annuity of \$100 if the appropriate interest rate is 10 percent?
(b) What is the present
value of the annuity?
(c) What would the
future and present values be if the annuity were an annuity due?

3.
Suppose
someone offered to sell you a note that would pay \$1,000 fifteen months from
today. They offer to sell it to you for
\$850. You have \$850 in a bank time
deposit that pays 6.76649 percent nominal rate with daily compounding, which is
a 7 percent effective annual interest rate, and you plan to leave the money in
the bank unless you buy the note. The
note is not risky- you are sure it will be paid on schedule. Should you buy the note? Check the decision
in three ways: (a) by comparing your future value if you buy the note versus
leaving your money in the bank, (b) by comparing the PV of the note with your
current bank account, and (c) by comparing the EAR on the note versus that of
the bank account.

Case 1
FNBSLW 344

Instructions:
1.
Answer all the questions clearly. Draw
timelines where appropriate and show your work. If you use your calculator,
write down the appropriate keystrokes.
2.
For hand-written solutions, make sure
that they are legible and clear.

1.
(a) What is the future value of an
initial \$100 after 3 years if it is invested in an account paying 10 percent
annual interest?
(b) What is the
present value of \$100 to be received in 3 years if the appropriate interest
rate is 10 percent?

2.
(a) What is the future value of a 3-year
ordinary annuity of \$100 if the appropriate interest rate is 10 percent?
(b) What is the present
value of the annuity?
(c) What would the
future and present values be if the annuity were an annuity due?

3.
Suppose
someone offered to sell you a note that would pay \$1,000 fifteen months from
today. They offer to sell it to you for
\$850. You have \$850 in a bank time
deposit that pays 6.76649 percent nominal rate with daily compounding, which is
a 7 percent effective annual interest rate, and you plan to leave the money in
the bank unless you buy the note. The
note is not risky- you are sure it will be paid on schedule. Should you buy the note? Check the decision
in three ways: (a) by comparing your future value if you buy the note versus
leaving your money in the bank, (b) by comparing the PV of the note with your
current bank account, and (c) by comparing the EAR on the note versus that of
the bank account.

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