Three years from now, Barbara Waters will purchase a laptop computer that will cost $2,250. Assume that Barbara can earn 6.25% (compounded monthly) on her money. How much should she set aside today for the purchase? Round off to the nearest $1.
A) $1,250
B) $900
C) $1,866
D) $3,775
If you want to have $875 in 32 months, how much money must you put in a savings account today? Assume that the savings account pays 16% and it is compounded monthly (round to the nearest $10).
A) $630
B) $570
C) $650
D) $660
Which of the following is the formula for present value?
A) FVn = P(1 + i)n
B) FVn = (1 + i)/P
C) FVn = P/(1 + i)n
D) FVn = P(1 + i)-n
All else constant, the present value of an investment will increase if
A) the investment is discounted at a higher interest rate.
B) the investment is discounted for fewer years.
C) the investment is discounted at a lower interest rate.
D) both B and C.
Answer: D
To find the present value of $1000 discounted for 20 years at 8%, when using a financial calculator, the correct entry is
A) N=20, i=.08,PMT = 0, FV=1000 solve for PV
B) N=20, i=8,PMT = 0, FV=1000 solve for PMT
C) N=20, i=.08,PMT = 0, PV=1000 solve for FV
D) N=20, i=8,PMT = 0, FV=1000 solve for PV
