Assignment

1. (Future value) Leslie Mosallam, who recently sold her Porsche, placed $10,000 in a savings account paying annual compound interest of 6 percent.

a. Calculate the amount of money that will accumulate if Leslie leaves the money in the bank for 1, 5, and 15 years.

b. Suppose Leslie moves her money into an account that pays 8 percent or one that pays 10 percent. Rework part (a) using 8 percent and 10 percent.

c.What conclusions can you draw about the relationship between interest rates, time, and future sums from the calculations you just did?

2. (Present value) What is the present value of the following future amounts?

a.$800 to be received 10 years from now discounted back to the present at 10 percent

b.$300 to be received 5 years from now discounted back to the present at 5 percent

c.$1,000 to be received 8 years from now discounted back to the present at 3 percent

d.$1,000 to be received 8 years from now discounted back to the present at 20 percent.