1. What is the future value of $1,200, placed in a saving account for four years
ID: 2632522 • Letter: 1
Question
1. What is the future value of $1,200, placed in a saving account for four years if the account pays 0.08, compounded quarterly? Answer to two decimal places
2. f you were to borrow $9,800 over five years at 0.11 compounded monthly, what would be your monthly payment?
3. Your uncle promises to give you $500 per quarter for the next five years. How much is the promises worth right now if the interest rate is 0.08 compounded quarterly?
4. A stock has an expected return of 0.12 and a variance of 0.20. what is its coefficient of variation?
5. Use the following information to calculate your company's expected return.
State Probability Return Boom 20% 0.14 Normal 60% 0.10 Recession 20% -0.16Explanation / Answer
1)
FV = 1200 * (1 + 0.08/4)^16 = 1647.34
2)
x * [1-(1+0.11/12)^-60]/0.11/12 = 9800
x = 213.08
3)
PV = 500 * [1-(1+0.08/4)^-20]/0.08/4
= 8175.72
4)
coefficient of variation = sqrt(0.2)/0.12 = 3.73
5)
expected return = 0.2 *0.14 + 0.6 *0.1 + 0.2 * -0.16
=0.056 or 5.60%
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