Finance Exam

Finance Assessment

Student’s Name

Institutional Affiliation

1. After placing $8,000 in a savings account paying annual compound interest of 8%, calculate the amount that will accumulate if it is left for 8 years?

FV = PV X (1 +r) n

= 8,000 x (1.08)8

= $14,807.44

2. If you deposit $17,000 today in an account earning an annual rate of return of 10%, how much interest would be earned in the third year? How much would this amount differ from simple interest?

Compound Interest

FV = PV X (1 +r) n

= 17,000 x (1.1)3

= $22,627

Simple interest

Principal X Rate x Time

= 17,000 x 10% x 3

= 17,000 + 5100

= 22,100

Difference

$22,627 - $22,100

= $527

3. To pay for your education, you have taken out $28,000 in student loans. If you make monthly payments over 13 years at 5% compounded monthly, how much are your monthly student loan payments?

Balance	28000
Interest rate	0.05
Periods	156
Monthly Payment	($1,400.69)

4. What is the present value of a $650 perpetuity discounted back to the present at 10%? What is the present value of the perpetuity?

PV = Coupon per period/ Discount rate

PV = $650/0.10

= $6,500

5. How much do you have to deposit today so that, beginning 11 years from now, you can withdraw $9,000 a year for the next 8 years (periods 11 through 18) plus an additional amount of $18,000 in the last year (period 18)? Assume an interest rate of 6%.

PV = 9000((1-(1+0.06)-8)/0.06)

=$55,888.14

PV = FV/ (1+I) n

= 55,888.14/ (1+0.06)10

= 31,207. 64

References

Titman, S., Keown, A. J., & Martin J. D. (2014). Financial management: Principles and applications (12th ed.). Upper Saddle River, NJ: Pearson.

Pearson, G., Brown, R., Easton, S., & Howard, P. (2014). Business finance. McGraw-Hill Education Australia.

Bodie, Z. (2013). Investments. McGraw-Hill.