Question 1 You have $ 3 , 6 0 0 to invest today at 7 % interest compounded annually.
a.
Find how much you will have accumulated
in the account at the end of
(1)
2
years, (2)
4
years, and
(3) 6
years.
b.
Use your findings in part
a
to calculate the amount of interest
earned in
(1)
the first
2
years
(years 1 to
2
),
(2) the second 2 years
(years 3 to
4
),and
(3) the third 2 years
(years 5 to
6
).
c.
Compare and contrast your findings in
part
b.
Explain why the amount of interest
earned increases in each succeeding
2

y
e
a
r
period.
Question 2 
Without referring to the
preprogrammed function on your financial
calculator
,use the basic formula for present
value, along with the given discount
rate,
r
,and the number of
periods,
n
,to calculate the present value of
$1 in the case shown below:
Opportunity
cost,
r: 18%,
Number of
periods,
n 12
Question 3 
Answer each of the following
questions.
a.
How much money would you have to invest
today to accumulate
$
5
,
4
0
0 after 9 years if the rate of return on your
investment is
1
1
%?
b.
What
is the present value of
$
5
,
4
0
0 that you will receive after 9 years if the
discount rate is
1
1
%?
c.What is the most you would spend today for an
investment that will pay
$
5
,
4
0
0 in 9 years if your opportunity cost is
11%
?
d.
Compare, contrast, and discuss your findings
in part
athrough
c
.
Question 4 Using the values
below, answer the questions that follow.
Amount of annuity
 $2,000
Interest rate
 9%
Deposit period
(years)  7
a.
Calculate the future value of the
annuity, assuming that it is
(1) An
ordinary annuity.
(2) An
annuity due.
b. Compare your findings in parts a (1) and a (2). All else being identical, which type of annuity — ordinary or annuity — is preferable as an investment? Explain why.
Question 5 
Consider the following case.
Amount of annuity  $42,000
Interest rate  7%
Period
(years)  8
a.
Calculate the present value of the
annuity assuming that it is
(1) An
ordinary annuity.
(2) An
annuity due.
b. Compare your findings in parts a (1) and a (2).All else being identical, which type of annuity — ordinary or annuity — is preferable? Explain why.
Question 6  Marian Kirk wishes to select the better of two 6 year annuities. Annuity 1 is an ordinary annuity of $ 1 , 9 7 0 per year for 6 years. Annuity 2 is an annuity due of $ 1 , 8 2 0 per year for 6 years.
a.
Find the future value of both annuities
at the end of year
6
, assuming that Marian can earn
(1)
7
% annual interest and
(2)
1
4
% annual interest.
b.
Use
your findings in part
ato indicate which annuity has the greater future
value at the end of year
6 for both the
(1)
7
% and
(2)
1
4
% interest rates..
c.
Find
the present value of both
annuities, assuming that Marian can earn
(1)
7
%annual interest and
(2)
1
4
% annual interest.
d.
Use
your findings in part
cto indicate which annuity has the greater present
value for both the
(1)
7
% and
(2)
1
4
% interest rates.
e.Briefly
compare,
contrast, and explain any differences between your findings using
the
7
% and
1
4
%
interest rates in parts
band
d
.
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