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# BUSI 530 CONNECT PLUS CHAPTER 5 HOMEWORK

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Old Time Savings Bank pays 3% interest on its savings accounts. If you deposit \$1,500 in the bank and leave it there
Compute the future value of a \$140 cash flow for the following combinations of rates and times
If you earn 9% per year on your bank account, how long will it take an account with \$105 to double to 2010?
In 1880 five aboriginal trackers were each promised the equivalent of 50 Australian dollars for helping to capture the notorious outlaw Ned Kelley. In 2001 the granddaughters of two of the trackers claimed that this reward had not been paid. The Victorian prime minister stated that if this was true, the government would be happy to pay the \$50. However, the granddaughters also claimed that they were entitled to compound interest
You can buy property today for \$3.6 million and sell it in 5 years for \$4.6 million. (You earn no rental income on the property.)
Find the interest rate implied by the following combinations of present and future values:
A famous quarterback just signed a \$22.2 million contract providing \$3.2 million a year for 6 years. A less famous receiver signed a \$21.2 million 6-year contract providing \$5 million now and \$2.8 million a year for 6 years. The interest rate is 9%.
A local bank advertises the following deal: Pay us \$100 at the end of each year for 11 years and then we will pay you (or your beneficiaries) \$100 at the end of each year forever.
You take out a 30-year \$110,000 mortgage loan with an APR of 9% and monthly payments. In 13 years you decide to sell your house and pay off the mortgage. What is the principal balance on the loan?
Home loans typically involve “points,” which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. For example, if the loan is for \$130,000 and 2 points are charged, the loan repayment schedule is calculated on a \$130,000 loan but the net amount the borrower receives is only \$127,400. Assume the interest rate is 1.00% per month. What is the effective annual interest rate charged on such a loan, assuming loan repayment occurs over 324 months?
A couple will retire in 50 years; they plan to spend about \$36,000 a year in retirement, which should last about 25 years. They believe that they can earn 8% interest on retirement savings.
A store will give you a 2.25% discount on the cost of your purchase if you pay cash today. Otherwise, you will be billed the full price with payment due in 1 month. What is the implicit borrowing rate being paid by customers who choose to defer payment for the month?
In April 2013 a pound of apples cost \$1.59, while oranges cost \$1.23. Four years earlier the price of apples was only \$1.38 a pound and that of oranges was \$1.09 a pound.
An engineer in 1950 was earning \$6,800 a year. Today she earns \$68,000 a year. However, on average, goods today cost 9.6 times what they did in 1950. What is her real income today in terms of constant 1950 dollars?

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