Unit 3: Homework Assignment

1. If you deposit $2000 in a bank account today that pays 6% annually, how much will be in your account after 5 years?
2. What is the present value of a security that will pay $29,000 in 20 years if the interest rate is 5% annually?
3. Find the following values assuming that compounding/discounting occurs annually and then work them again assuming monthly compounding.

• $600 compounded for 1 year at 6%
• $600 compounded for 2 years at 6%
• The present value of $600 that has been invested for 1 year at 6%
• The present value of $600 invested for 2 years at a discount rate of 6%
• $200 compounded for 10 years at 4%
• $200 compounded for 10 years at 8%
• The present value of $200 that has been invested for 10 years at 4.                                                                                                                                                                                                                                                                                                                                   4. TB Bank pays 8 percent simple interest on its savings account balances, whereas FB Bank pays 8 percent interest compounded annually. If you made a deposit of $9,000 in each bank how much more money would you earn from FB Bank than TB Bank at the end of 8 years.

5. Suppose the total cost of a college education was $180,000 when your child enters as a freshman in 18 years. At present, you have $52,000 to invest.  What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?