# Compare the average level of interest rates among the three types of loans, FIN 100 Homework 1

Complete the following from thetextbook:

• Chapter 9: E1, P2, P3, P4, P5, P6, P7, P16, P17, P19

E1

1.Go to the Federal Reserve Web site, http://www.federalreserve.gov. Click on theConsumer Information tab, and research consumer credit in the varioushyperlinks. Find average interest rates charged by commercial banks on newautomobile loans, personal loans, and credit card plans.

a. Compare theaverage level of interest rates among the three types of loans.

b. Click on the Economic Research &Data tab, click on the “Statistics: Releases and

Historical Data” hyperlink and then “ConsumerCredit,” and compare trends in the cost of

consumer credit provided by commercialbanks over the past three years.

P2

2.Find the FV of \$10,000 invested now after five years if the annual interestrate is 8 percent.

a. What would be the FV if the interestrate is a simple interest rate?

b. What would be the FV if the interestrate is a compound interest rate?

P3

3.Determine the future values (FVs) if \$5,000 is invested in each of thefollowing situations:

a. 5 percent for ten years

b. 7 percent for seven years

c. 9 percent for four years

P4

4.You are planning to invest \$2,500 today for three years at a nominal interestrate of 9 percent with annual compounding.

a. What would be the future value (FV) ofyour investment?

b. Now assume that inflation is expectedto be 3 percent per year over the same three-year

period. What would be the investment’sFV in terms of purchasing power?

c. What would be the investment’s FV interms of purchasing power if inflation occurs at 9

percent annual rate?

P5

5.Find the present value (PV) of \$7,000 to be received one year from now assuminga 3 percent annual discount interest rate. Also calculate the PV if the \$7,000is received after two years.

P6

6.Determine the present values (PVs) if \$5,000 is received in the future (i.e. atthe end of each indicated time period) in each of the following situations:

a. 5 percent for ten years

b. 7 percent for seven years

c. 9 percent for four years.

P7

7.Determine the present value (PV) if \$15,000 is to be received at the end ofeight years and the discount rate is 9 percent. How would your answer change ifyou had to wait six years to receive the \$15,000?

P16

16.Use a financial calculator or computer software program to answer the followingquestions:

a. What would be the future value (FV) of\$15,555 invested now if it earns interest at 14.5

percent for seven years?

b. What would be the FV of \$19,378invested now if the money remains deposited for eight

years and the annual interest rate is18 percent?

P17

17.Use a financial calculator or computer software program to answer the followingquestions:

a. What is the present value (PV) of359,000 that is to be received at the end of twenty-three

years if the discount rate is 11percent?

b. How would your answer change in (a) ifthe \$359,000 is to be received at the end of twenty

years?

P19

19.Use a financial calculator or computer software program to answer the followingquestions:

a. What would be the future value (FV) of\$19,378 invested now if the money remains

deposited for eight years, the annualinterest rate is 18 percent, and interest on the

investment is compounded semiannually?

b. How would your answer for (a) change ifquarterly compounding were used?

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