Week 5 Check Your Understanding

Question 1
Determine the present values if $5,000 is received in the future (that is, at the end of each indicated time period) in each of the following situations:
 5 percent for ten years
Answers: $3,070
$2,070
$3,170
$4,070

Question 2
Determine the present values if $5,000 is received in the future (that is, at the end of each indicated time period) in each of the following situations: 7 percent for seven years.
Answers: $2,114
$4,114
$3,114
$1,314

Question 3
Determine the present values if $5,000 is received in the future (that is, at the end of each indicated time period) in each of the following situations: 9 percent for four years:
Answers: $4,542
$6,542
$2,542
$3,542

Question 4
Assume you are planning to invest $5,000 each year for six years and will earn 10 percent per year. Determine the future value of this annuity if your first $5,000 is invested at the end of the first year.
Answers: $38,470
$38,578
$34,578
$35,878

Question 5
Determine the present value now of an investment of $3,000 made one year from now and an additional $3,000 made two years from now, if the annual discount rate is 4 percent.
Answers: $5,658.28
$5,628.19
$5,638.29
$5,658.19

Question 6
Assume a bank loan requires an interest payment of $85 per year and a principal payment of $1,000 at the end of the loan’s eightyear life. What would be the present value of this loan if it carried an 8.5 percent interest rate?
Answers: $1,546
$1,200
$1,000
$1,100

Question 7
Assume a bank loan requires an interest payment of $85 per year and a principal payment of $1,000 at the end of the loan’s eightyear life. What would be the present value of this loan if it carried a 10 percent interest rate?
Answers: $920
$820
$720
$620

Question 8
Assume a bank loan requires an interest payment of $85 per year and a principal payment of $1,000 at the end of the loan’s eightyear life. What would be the present value of the loan if the interest rate is 8 percent?
Answers: $1,038
$1,048
$1,058
$1,028