Introduction to Finance

2. 
Find the future value of $10,000 invested now after fi ve years if the 
annual interest rate is 8 percent.
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? 
3. 
Determine the future values if $5,000 is invested in each of the 
following situations:
a. 
5 percent for ten years
b. 
7 percent for seven years
c. 
9 percent for four years
4. 
You are planning to invest $2,500 today for three years at a nominal 
interest rate of 9 percent with annual compounding.
a. 
What would be the future value of your investment?
b. 
Now assume that infl ation is expected to be 3 percent 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 pur-
chasing power if infl ation occurs at a 9 percent annual rate?
5. 
Find the present value of $7,000 to be received one year from now, 
assuming a 3 percent annual discount interest rate. Also calculate the 
present value if the $7,000 is received after two years. 
6. 
Determine the present values if $5,000 is received in the future (i.e., at 
the end of each indicated time period) in each of the following situations:
a. 
5 percent for ten years
b. 
7 percent for seven years
c. 
9 percent for four years
7. 
Determine the present value if $15,000 is to be received at the end 
of eight years and the discount rate is 9 percent. How would your 
answer change if you had to wait six years to receive the $15,000?
8. 
Determine the future value at the end of two years of an investment 
of $3,000 made now and an additional $3,000 made one year from 
now if the compound annual interest rate is 4 percent.
9. 
Assume you are planning to invest $5,000 each year for six years 
and will earn 10 percent per year. Determine the future value of this 
annuity if your fi rst $5,000 is invested at the end of the fi rst year.
10. 
Determine the present value now of an investment of $3,000 made 
one year from now and an additional $3,000 made two years from 
now if the annual discount rate is 4 percent.
11. 
What is the present value of a loan that calls for the payment 
of $500 per year for six years if the discount rate is 10 percent and 
the fi rst payment will be made one year from now? How would your 
answer change if the $500 per year occurred for ten years?
12. 
Determine the annual payment on a $500,000, 12 percent busi-
ness loan from a commercial bank that is to be amortized over a fi ve-
year period.
13. 
Determine the annual payment on a $15,000 loan that is to be 
amortized over a four-year period and carries a 10 percent interest 
rate. Also prepare a loan amortization schedule for this loan.