Exercise

1. go to the federal reserve web site Http://www.federalreserve.gov click on the consumer information tab, and research consumer credit in the various hyperlinks. Find average interest rates charged by commercial banks on new automobile loans, personal loans and credit card plans.

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a) compare the average level of interest rates amount the three types of loans

b) click on the economics research & data tab, click on the statistics: releases and historical data, hyperlinked and then consumer credit and compare trends in the cost of consumer credit provide by commercial banks over the past three years.

Problems

1. Find the FV of $10,000 invested now after five years if the annual interest rate is 8 percent.

a) what would be the FV if the interest rate is a simple interest rate?

b) What would be the FV if the interest rate is a compounder interest rate?

2. Determine the future values (FVs) if $5,000 is invested in each of the following situations

a) 5 percent for ten years

b) 7 percent for seven years

c) 9 percent for four years

3. If 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 (FV) 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 FV in terms of purchasing power?

c) what would be the investment’s FV in terms of purchasing power if inflation occurs at a 9 percent annual rate?

4. Find the present value (PV) of $7,000 to be received one year from now assuming a 3 percent annual discount interest rate. Also calculate the PV of the $7,000 is received after two years.

5. Determinate the present value (PV) 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?

6. use a financial calculator or computer software program to answer the following questions?

a) what would be the future value (FV) of $15,555 invested now if it earns interest at 14.5 percent for seven years.

b) what would it be he VF of $19,378 invested now if the money remains deposited for eight years and the annual interest rate is 18 percent?

7. use a financial calculator or computer software program to answer the following questions?

a) what is the present value (PV) 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 you answer change in (a) if the $359,000 is to be received at the end of twenty years?

8. use a financial calculator or computer software program to answer the following questions?

a) what would be the future value (FV) of $19,378 invested now if the money remains deposited for eight years, the annual interest rate is 18 percent and the interest on the investment is compounded semiannually?

b) How would you answer for (a) change is quarterly compounding were used?

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