Math (midterm)

1. Calculating Present Values (LO2) For each of the following, compute the present value:

2. Calculating Interest Rates (LO3) Solve for the unknown interest rate in each of the following:

3. Calculating the Number of Periods (LO4) Solve for the unknown number of years in each of the following:

4. Calculating Rates of Return (LO3) 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 Petit Danseuse de Quartorze 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?

5. Calculating Future Values (LO1) you are scheduled to receive $15,000 in two years. When you receive it, you will invest it for six more years at 7.1 percent per year. How much will you have in eight years?

Solutions

1.

2.

3.

4.

Solving for r

r = (FV / PV)1 / t – 1

r = ($10,311,500 / $12,377,500)1/4 – 1 = – 4.46%

5.