FIN 325 TEST WITH 100% CORRECT
ANSWERS
Assume the total cost of a college education will be $325,000 when your child enters
college in 16 years. You presently have $40,000 to invest and do not plan to invest
anything further. What annual rate of interest must you earn on your investment to cover
the entire cost of your child's college education? - Answer- 13.99 percent
$325,000 = $40,000 ×(1 + r)^16
r = 13.99 percent
Stephen claims that he invested $6,000 six years ago and that this investment is worth
$28,700 today. For this to be true, what annual rate of return did he have to earn?
Assume the interest compounded annually. - Answer- 29.80 percent
$28,700 = $6,000 × (1 + r)^6
r = 29.80 percent
Suppose that in 2015, a $10 silver certificate from 1898 sold for $11,700. For this to
have been true, what would the annual increase in the value of the certificate have
been? - Answer- 6.22 percent
$11,700 = $10 × (1 + r)^(2015−1898)
r = 6.22 percent
Moonlight Industries just signed a sales contract with a new customer. JK will receive
annual payments in the amount of $50,000, $96,000, $123,000, and $138,000 at the
end of Years 1 to 4, respectively. What is this contract worth at the end of Year 4 if the
firm earns 3.75 percent on its savings? - Answer- $424,786.07
FV = ($50,000 × 1.0375^3) + ($96,000 × 1.0375^2) + ($123,000 × 1.0375^1) +
$138,000 = $424,786.07
Krystal plans to save $500 at the end of Year 1, $600 at the end of Year 2, and $800 at
the end of Year 3. If she earns 2.8 percent on her savings, how much money will she
have saved at the end of Year 3? - Answer- $1,945.19
FV = ($500 × 1.028^2) + ($600 × 1.028^1) + $800 = $1,945.19
A local magazine is offering a $5,000 grand prize to one lucky winner. The prize will be
paid in five annual payments of $1,000 each, starting one year after the drawing. How
much would this prize be worth to you if you can earn 8 percent on your money? -
Answer- $3,992.71
5:N, 8:I/Y, 1,000.00:PMT, 0:FV
=-3,992.71
ANSWERS
Assume the total cost of a college education will be $325,000 when your child enters
college in 16 years. You presently have $40,000 to invest and do not plan to invest
anything further. What annual rate of interest must you earn on your investment to cover
the entire cost of your child's college education? - Answer- 13.99 percent
$325,000 = $40,000 ×(1 + r)^16
r = 13.99 percent
Stephen claims that he invested $6,000 six years ago and that this investment is worth
$28,700 today. For this to be true, what annual rate of return did he have to earn?
Assume the interest compounded annually. - Answer- 29.80 percent
$28,700 = $6,000 × (1 + r)^6
r = 29.80 percent
Suppose that in 2015, a $10 silver certificate from 1898 sold for $11,700. For this to
have been true, what would the annual increase in the value of the certificate have
been? - Answer- 6.22 percent
$11,700 = $10 × (1 + r)^(2015−1898)
r = 6.22 percent
Moonlight Industries just signed a sales contract with a new customer. JK will receive
annual payments in the amount of $50,000, $96,000, $123,000, and $138,000 at the
end of Years 1 to 4, respectively. What is this contract worth at the end of Year 4 if the
firm earns 3.75 percent on its savings? - Answer- $424,786.07
FV = ($50,000 × 1.0375^3) + ($96,000 × 1.0375^2) + ($123,000 × 1.0375^1) +
$138,000 = $424,786.07
Krystal plans to save $500 at the end of Year 1, $600 at the end of Year 2, and $800 at
the end of Year 3. If she earns 2.8 percent on her savings, how much money will she
have saved at the end of Year 3? - Answer- $1,945.19
FV = ($500 × 1.028^2) + ($600 × 1.028^1) + $800 = $1,945.19
A local magazine is offering a $5,000 grand prize to one lucky winner. The prize will be
paid in five annual payments of $1,000 each, starting one year after the drawing. How
much would this prize be worth to you if you can earn 8 percent on your money? -
Answer- $3,992.71
5:N, 8:I/Y, 1,000.00:PMT, 0:FV
=-3,992.71
