Chapter 4 Assignment Willie Graham 1. Simple Interest versus Compound Interest First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually. If you made a 56,000 deport 2. Calculating Future Values Compute the future value of $2,500 compounded annually for a. 10 years at 6 percent b. 10 years at \& pereent c. 20 years at 6 percent d. Why is the interest earned in part (c) not twice the amount eamed in part (a)? 3. Calculating Present Values For each of the following, compute the present value: Do this. 4. Calculating Interest Rates, Do this. 5. Calculating the Number of Periods. Do this. 6. Calculating the Number of Periods At 8 percent interest, how long does it take to double your money? To quadruple it? 7. Calculating Present Values Imprudential, Inc., has an unfunded pension liability of $750 million that must be paid in 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.25 percent, what is the present value of this liability? 8. Calculating Rates of Retum Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, Sothebys sold the Edgar Degas bronze sculpture Petite Danseuse de Quatorze Ans at auction for a price of $10,311,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,377,500. What was his annual rate of return on this sculpture? 9. Perpetuities An investor purchasing a British consol is entitled to receive annual payments from the British government forever. What is the price of a consol that pays $160 annually if the next payment occurs one year from today? The market interest rate is 4.5 percent. Chapter 4 Assignment Wille Graham ewilleGrahamdinewberry edu: (a)