Assignment 1

Question 1
(5 points) $100 today is worth the SAME as $100 tomorrow.
Your Answer

Score
Explanation
True

False
Correct
5.00
Correct. You understand time value
Total

5.00 / 5.00

Question Explanation

We have assumed that time value of money is positive.
Question 2
(5 points) At an interest rate of 10% it is better to have $100 today than $120 in 2 years.
Your Answer

Score
Explanation
True
Correct
5.00
Correct; it is compounding!
False

Total

5.00 / 5.00

Question Explanation

All about compounding!
Question 3
(5 points) Shawn wants to buy a new telescope. He estimates that it will take him one year to save the money and that the telescope will cost $200. At an interest rate of 6%, how much does Shawn need to set aside today to purchase the telescope in one year? (Enter just the number without the $ sign or a comma)
Answer for Question 3
You entered:

Your Answer

Score
Explanation
189
Correct
5.00
Correct, You know it has to be less than $200.
Total

5.00 / 5.00

Question Explanation

Simple PV calculation.
Question 4
(10 points) Jeff has $1,000 that he invests in a safe financial instrument expected to return 3% annually. Marge has $500 and invests in a more risky venture that is expected to return 7% annually. Who has more after 20 years? And how much does he/she have in FV terms?
Your Answer

Score
Explanation
Jeff; 1935

Marge; 1935
Correct
10.00
Correct. You know how to calculate FVs!
Marge; 1806

Jeff; 1604

Marge; 1604

Jeff; 1806

Total

10.00 / 10.00

Question Explanation

FV calculations of simple one-shot cash flows. Shows power of compounding.
Question 5
(10 points) Your dad invested $25 for you 70 years ago in a fund and you have not withdrawn any money since. If the fund has averaged a return of 8 percent over the last 70 years, what is the current value of that investment? (Round to the nearest whole dollar; enter just the number without the $ sign or a comma)
Answer for Question 5
You entered:

Your Answer

Score
Explanation
5465