annual interest rate
(Note: Some of these problems require the use of the time value of money tables in the Chapter 1 Appendix).
1. Ben Collins plans to buy a house for $65,000. If that real estate property is expected to increase in value 5 percent each year, what would its approximate value be seven years from now?
2. At an annual interest rate of five percent, how long would it take for your savings to double?
3. In the mid-1990s, selected automobiles had an average cost of $12,000. The average cost of those same motor vehicles is now $20,000. What was the rate of increase for this item between the two time periods?
4. A family spends $28,000 a year for living expenses. If prices increase by 4 percent a year for the next three years, what amount will the family need for its living expenses?
5. What would be the yearly earnings for a person with $6,000 in savings at an annual interest rate of 5.5 percent?
6. Elaine Romberg prepares her own income tax return each year. A tax preparer would charge her $60 for this service. Over a period of 10 years, how much does Elaine gain from preparing her own tax return? Assumes she can earn 3 percent on her savings.
7. Tran Lee plans to set aside $1,800 a year for the next six years, earning 4 percent. What would be the future value of this savings amount?
8. 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 1 Appendix.)
9. Based on the following data, compute the total assets, total liabilities, and net worth.
Liquid assets, $3,670 Household assets, $89,890
Investment assets, $8,340 Long-term liabilities, $76,230
Current liabilities, $2,670
10. Which of the following employee benefits has the greater value? Use the formula given in the “Financial Planning Calculations” – “Tax-Equivalent Employee Benefits” box found in Chapter 2 to compare these benefits. (Assume a 28 percent tax rate.)
A nontaxable pension contribution of $4,300 or the use of a company car with a taxable value of $6,325.
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