Chapter 9: Problems 1-4
P1. Find the future value one year from now of a $7,000 investment at a 3% annual compound interest rate. Also calculate the future value if the investment is made for two years.
P2. Find the future value of $10,000 invested now after 5 years if the annual interest rate is 8%.
a. What would be the future value if the interest rate is a simple interest rate?
b. What would be the future value if the interest rate is a compound interest rate?
P3. Determine the future values if $5,000 is invested in each of the following situations:
a. 5% for ten years
b. 7% for seven years
c. 9% for four years
P4. You are planning to invest $2,500 today for three years at a nominal interest rate of 9% with annual compounding.
a. What would be the future value of your investment?
b. Now assume that inflation is expected to be 3% per year over the same three-year period. What would be the investment’s future value in terms of purchasing power?
c. What would be the investment’s future value in terms of purchasing power if inflation occurs at a 9% annual rate?
