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ACF 103 - Fundamentals of Finance Tutorial 2 - Questions: Homework Problem

This document provides sample questions from Chapter 3 of a finance textbook. The questions cover topics such as present value calculations, compound interest, annuities, rates of return, and investment strategies. There are 14 questions in total, ranging from simple calculations to word problems evaluating different investment approaches over long time horizons. The document also directs students to specific textbook questions for additional homework problems.

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Riri Fahrani
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© © All Rights Reserved
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Download as DOC, PDF, TXT or read online on Scribd
22 views

ACF 103 - Fundamentals of Finance Tutorial 2 - Questions: Homework Problem

This document provides sample questions from Chapter 3 of a finance textbook. The questions cover topics such as present value calculations, compound interest, annuities, rates of return, and investment strategies. There are 14 questions in total, ranging from simple calculations to word problems evaluating different investment approaches over long time horizons. The document also directs students to specific textbook questions for additional homework problems.

Uploaded by

Riri Fahrani
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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ACF 103 – Fundamentals of Finance

Tutorial 2 - Questions
Chapter 3
1. What is the total present value of the following series of cash flows,
discounted at 10%?
End of year Cash flow
1 $1,000
2 1,000
3 -2,000
4 3,000

2. How long would it take for your money to triple if you invested it at 9%,
compounded annually?

3. At your brother's 15th birthday party, he asks you how much he would have to
deposit at the end of every month to finance a $4,250 motorcycle on his 18th
birthday. He plans to put the money in a 12% savings account that compounds
interest monthly.

Homework problem
4. Text book Ch 3 question # 9 (p.66)

5. Text book Ch 3 question # 12 (p.67)

6. Text book Ch 3 question # 13 (p.67)

7. It is January 1 and you have made a New Year's resolution to invest $2,000 in
an Individual Retirement Account (IRA) at the end of every year for the next
30 years. If your money is compounded at an average annual rate of 9%, how
much will you have accumulated at the end of 30 years?

8. Congratulations! You have just won first prize in a raffle and must choose
between $20,000 in cash today or an annuity of $5,000 a year for five years.
(The annuity payments would come to you at the end of each year.) Which of
these two choices is worth more, assuming a 7% discount rate? Show your
calculations.

9. Your aunt is bragging about the great investment she made in a house that she
bought 30 years ago for $20,000 and has just sold for $65,000.
a. Calculate the rate of return on this investment.
b. If the average annual rate of inflation has been 3.5% during this period,
was this "a great investment?" Explain.

10. Ms. Early Saver has decided to invest $1,000 at the end of each year for the
next 10 years, then she will just let the amount compound for 40 additional
years. Her brother, Late Saver, has a different investment program: He will
invest nothing for the next 10 years, but will invest $1,000 per year (at the end
of each year) for the following 40 years. If we assume an 8% rate of return,
compounded annually, which investment program will be worth more 50 years
from now?

ACF 103 Haut 2015 Tutorial 2 1


Homework problem
11. Text book Ch 3 question # 1 (p.65)

12 Text book Ch 3 question # 2 (p.66)

13. Text book Ch 3 question # 4 (p.66)

14. Text book Ch 3 question # 5 (p.66)

ACF 103 Haut 2015 Tutorial 2 2

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