- Assume that you purchase a 6-year, 12 percent savings certificate for $1,000. If interest is compounded annually, what will be the value of the certificate when it matures?

- If the interest in the previous problem is compounded quarterly. What is the difference between the ending value of the savings certificate compounded quarterly and the one compounded annually?

- A friend promises to pay you $600 two years from now if you loan him $500 today. What annual interest rate is your friend offering?

- At an inflation rate of 9 percent, the purchasing power of $1 would be cut in half in just over 8 years. How long, to the nearest year, would it take for the purchasing power of $1 to be cut in half if the inflation rate were only 4 percent?

- If you would like to accumulate $7,500 over the next 5 years, how much must you deposit each two months, starting two months from now, given a 6 percent interest rate and twomonth compounding?

- You decide to begin saving toward the purchase of a new car in 5 years. If you put $1,000 at the end of each of the next 5 years in a savings account paying 7 percent compounded annually, how much will you accumulate after 5 years?

- Refer to Problem 6. What would be the ending amount if $500 payments were made at the end of each 6-month period for 5 years and the account paid 10 percent compounded semiannually?

- Bob has $20,000 in a brokerage account, and he plans to contribute an additional $7,500 to the account at the end of every year. The brokerage account has an expected annual return of 8 percent. If Bob’s goal is to accumulate $375,000 in the account, how many years will it take to reach his goal?

- How much would you be willing to pay today for an investment that would return $800 each year at the end of each of the next 6 years? Assume a discount rate of 5 percent.

- What is the present value of the following cash flows (received at the end of the year) if the interest rate is 12 percent?

1 2 3 4 5

2000 2000 2000 3000 -4000

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