1. Compute the future value of $1000 at 10% compounded annually for 6 years.
2. Compute the present value of $1000 due in 4 years at 15%, compounded semiannually.
a) Compute the future value of a 9%, 5-year ordinary annuity that pays $600 each year.
b) Assume that payments are made at the beginning of the year. Find the future value using the given information from part (a).
c) Use your results from part (a) and part (b) to make a generalization comparing the future value of an annuity and the future value of an annuity due.
3. Suppose a State of California bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?
4. Suppose Bank A pays 8% interest, compounded semiannually. Bank B pays 8% interest, compounded quarterly.
Use the effective rate of interest (EAR) to determine which bank you should choose to deposit your money.

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August 26, 2013

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