1. Using the Rule of 72, approximate the following amounts:

  

1. Using the Rule of 72, approximate the following amounts: (LO1.1)

a. If the value of land in an area is increasing 6 percent a year, how long will it take for property values to double?

b. If you earn 10 percent on your investments, how long will it take for your money to double?

c. At an annual interest rate of 5 percent, how long will it take for your savings to double?

2. In 2019, selected automobiles had an average cost of $16,000. The average cost of those same automobiles is now $20,000. What was the rate of increase for these automobiles between the two time periods? (LO1.1)

3. A family spends $46,000 a year for living expenses. If prices increase 3 percent

a year for the next three years, what amount will the family need for their living expenses after three years? (LO1.1)

4. Ben Collins plans to buy a house for $260,000. If the real estate in his area is

expected to increase in value 2 percent each year, what will its approximate value be seven years from now? (LO1.2)

5. What would be the yearly earnings for a person with $9,000 in savings at an annual

interest rate of 2.5 percent? (LO1.3)

6. Using time value of money tables ( Exhibit 1–3 or chapter appendix tables), calculate

the following: (LO1.3)

a. The future value of $550 six years from now at 7 percent.

b. The future value of $900 saved each year for 10 years at 8 percent.

c. The amount a person would have to deposit today (present value) at a 5 percent

interest rate to have $1,000 five years from now.

d. The amount a person would have to deposit today to be able to take out $500 a

year for 10 years from an account earning 8 percent.

7. If you desire to have $12,000 for a down payment for a house in five years, what amount

would you need to deposit today? Assume that your money will earn 4 percent. (LO1.3)

8. Pete Morton is planning to go to graduate school in a program of study that will

take three years. Pete wants to have $8,000 available each year for various school

and living expenses. If he earns 4 percent on his money, how much must he

deposit at the start of his studies to be able to withdraw $8,000 a year for three

years? (LO1.3)

9. Carla Lopez deposits $2,800 a year into her retirement account. If these funds have

average earnings of 8 percent over the 40 years until her retirement, what will be the

value of her retirement account? (LO1.3)

10. If a person spends $10 a week on coffee (assume $500 a year), what would be the

future value of that amount over 10 years if the funds were deposited in an account

earning 3 percent? (LO1.3)

11. A financial company that advertises on television will pay you $60,000 now for

annual payments of $10,000 that you are expected to receive for a legal settlement

over the next 10 years. If you estimate the time value of money at 10 percent, would

you accept this offer? (LO1.3)

12. Tran Lee plans to set aside $2,600 a year for the next seven years, earning 3 percent.

What would be the future value of this savings amount? (LO1.3)

13. If you borrow $8,000 with a 5 percent interest rate to be repaid in five equal payments at the end of the next five years, what would be the amount of each payment?

( Note: Use the present value of an annuity table in the chapter appendix.) (LO1.3)

 

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