Chapter 6 mc

Question 1

If $100 is deposited today in an account paying 9 percent compound annual interest, how much will be in the account at the end of 4 years?

Answer 1

$141.16
HP-10BII keystrokes: , C ALL; 100, +/−, PV; 9, I/YR; 4, N; FV. Answer displayed: 141.16.
(A), (C), and (D) are incorrect calculations.

Question 2

If Bob deposits $8,000 today in an account that pays 3 percent compound annual interest, how long will it take for the account to reach $10,000?

Answer 2

7.55 years

HP-10BII keystrokes: , C ALL; 8000, +/−, PV; 10000, FV; 3, I/YR; N. Answer displayed: 7.55.

Question 3

Assume that payments of $1,000 are to be received at the end of each of the next 5 years. On the basis of a 9 percent compound annual interest assumption, what is the series of payments worth today?

Answer 3

$3,889.65

HP-10BII keystrokes: , C ALL; , BEG/END (if BEGIN displayed); 1000, PMT; 9, I/YR; 5, N; PV. Answer displayed: −3,889.65.

Question 4

How much money do you need to deposit today in a savings account earning 9 percent compound annual interest if your goal is to accumulate $10,000 at the end of 4 years?

Answer 4

$7,084.25

HP-10BII keystrokes: , C ALL; 10000, FV; 9, I/YR; 4, N; PV. Answer displayed: −7,084.25

Question 5

Jim needs to accumulate $25,000 in a savings account over the next 5 years. He can make five annual deposits of $4,000 starting today. What compound annual rate of return must the account earn in order for Jim to meet his goal?

Answer 5

7.53%
HP-10BII keystrokes: , C ALL; , BEG/END (if BEGIN not displayed); 25000, FV; 4000, +/−, PMT; 5, N; I/YR. Answer displayed: 7.53.

Question 6

Bill expects to receive $10,000 each year for 4 years beginning one year from today. If Bill can earn 6 percent compound annual interest on these funds, what is the present value of this series of payments?

Answer 6

$34,651.06
HP-10BII keystrokes: , C ALL; , BEG/END (if BEGIN displayed); 10000, PMT; 6, I/YR; 4, N; PV. Answer displayed: −34,651.06.

Question 7

If $1,000 is deposited into a savings account at the beginning of each of the next 4 years starting today, how much money will be in the account 4 years from now if no withdrawals are made and the account earns 9 percent compound annual interest?

Answer 7

$4,984.71
HP-10BII keystrokes: , C ALL; , BEG/END (if BEGIN not displayed); 1000, +/−, PMT; 9, I/YR; 4, N; FV. Answer displayed: 4,984.71.

Question 8

What is the yield to maturity of a $1,000 face amount bond that currently sells for $875, pays $60 of interest at the end of each year, and matures in 10 years?

Answer 8

(A) 7.85%
HP-10BII keystrokes: , C ALL; , BEG/END (if BEGIN displayed); 1000, FV; 875, +/−, PV; 60, PMT; 10, N; I/YR. Answer displayed: 7.85.

Question 9

Bob wants to accumulate $100,000 in his retirement fund over the next 5 years. He plans to make five equal annual payments into the fund starting today. If the fund can earn 8 percent compound annual interest, how large must each annual payment be?

Answer 9

$15,783.01
HP-10BII keystrokes: , C ALL; , BEG/END (if BEGIN not displayed); 100000, FV; 8, I/YR; 5, N; PMT. Answer displayed: −15,783.01.

Question 10

Jill plans to make 7 annual payments of $1,000 each to a savings account. Her plan calls for the first payment to be made one year from today. How much money will be in Jill’s account at the end of 7 years if the account earns 4 percent compound annual interest?

Answer 10

$7,898.29
HP-10BII keystrokes: , C ALL; , BEG/END (if BEGIN displayed); 1000, +/-, PMT; 4, I/YR; 7, N; FV. Answer displayed: 7,898.29.