Answer the questions and problems fully and completely, show all calculations not just the end answer, utilize problems and concepts from chapter material in answering your questions.

1. First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually. If you made a $6,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of nine years?

2. For each of the following, compute the future value:

Present Value          Years          Interest Rate          Future Value

$2,250                      11               13%                       ?

$8, 752                     7                 9%                         ?

$76,355                   14                12%                       ?

$183,796                 8                  6%                         ?

3. You have just received notification t5hat you have won the $1 million first prize in the Centennial lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 80 years from now. What is the present value of your windfall if the appropriate discount rate is 9 percent?

4. Wainright Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24%?

Year               Cash Flow

1                     $720

2                     $930

3                     $1,190

4                     $1,275

5. An investment will pay you $43,000 in 10 years. If the appropriate discount rate is 7 percent compounded daily, what is the present value?

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