Finance Homework Assignment
1. Go to the Federal Reserve Web site, http://www.federalreserve.gov. Go to "Economic Research and Data," and access "Recent Statistical Releases" and the "Consumer Credit." Find average interest rates charged by commercial banks on new automobile loans, personal loans and credit card plans.
a. Compare the average level of interest rates among the three types of loans.
b. Access "Historical Data" and then "Consumer Credit," and compare trends in the cost of consumer credit provided by commercial banks over the past three years.
2. Go to the Federal Reserve Web site, http://www.federalreserve.gov. Go to "Economic Research and Data," and access "Recent Statistical Releases" and the "Consumer Credit." Determine current interest rates charged by auto finance companies on new automobile loans. Also compare the trend in the cost of loans from auto finance companies over the past three years.
3. Assume that your partner and you are in the consumer lending business. A customer, talking with your partner, is discussing the possibility of obtaining a $10,000 loan for three months. The potential borrower seems distressed and says he needs the loan by tomorrow or several of his relatively new appliances will be repossessed by the manufacturers. You overhear your partner saying that in order to process the loan within one day there will be a $1,000 processing fee so that $11,000 in principal will have to be repaid in order to have $10,000 to spend now. Furthermore, because the money is needed now and is for only three months the interest charge will be 6 percent per month. What would you do?
4. You are planning to invest $2,500 today for three years at a nominal interest rate of 9 percent with annual compounding.
a. What would be the future value of your investment?
b. Now assume that inflation is expected to be 3 percent per year over the same three-year period. What would be the investment's future value in terms of purchasing power?
c. What would be the investment's future value interms of purchasing power if inflation occurs at a 9 percent annual rate?
5. Find the present value of $7,000 to be received one year from now assuming a 3 percent annual discount interest rate. Also calculate the percent value if the $7,000 is received after two years.
6. Determine the present values if $5,000 is received in the future (i.e., at the end of each indicated time period) in each of the following situations:
a. 5 percent for ten years
b. 7 percent for seven years
c. 9 percent for four years
7. Determine the present value if $15,000 is to be received at the end of eight years and the discount rate is 9 percent. How would your answer change if you had to wait six years to receive the $15,000?
16. Use a financial calculator or computer software program to answer the following questions:
a. What would be the future value of $15,555 invested now if it earns interest at 14.5 percent for seven years?
b. What would be the future value of $19,378 invested now if the money remains deposited for eight years and the annual interest rate is 18 percent?
17. Use a financial calculator or computer software program to answer the following questions:
a. What is the present value of $359,000 that is to be received at the end of twenty-three years if the discount rate is 11 percent?
b. How would your answer change in (a) if the $359,000 is to be received at the end of twenty years?
19. Use a financial calculator or computer software program to answer the following questions.
a. What would be the future value of $19,378 invested now if the money remains deposited for eight years, the annual interest rate is 18 percent, and interest on the investment is compounded semiannually?