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1 The Great Physicist Albert Einstein Was Credited With The Observation That Compound Interest Is The Most

Question

1. The great physicist, Albert Einstein was credited with the observation that compound interest is the most

powerful force in the universe. Explain by using an example and a

graph to make your points (Hint: use say $100 over a 50 year period with a non-compounding interest of 12% and a compound interest of 5%

At what value ($) will the investment be indifferent (FV non-compounding = Compounding)

2. A student is saving towards a long term financial objective. She sets aside $100 per month and is matched by her employer 1:1 (1 to one). She is estimated to earn 12 % on her savings. What price would you pay for her accumulated funds at the end of 50 payments?

[Work space]

Explain your results

PV ————————————————————— F

3. You are interested in purchasing a new automobile valued at $40,000 to get your CA

project off the ground. The dealer would finance at 8% with monthly repayment for 5

years but you must take a 10% stake in the financing (your down-payment, if you will).

a. What would be your quarterly repayment amount rounding to the nearest dollar?

b.. What is the outstanding principal balance at the end of the second repayment?

4.You are seeking to purchase a building site in the 5 years’ time based on your CA project. The business is today valued at $100,000 and is expected to grow in price at 3% per year compounded. You wish to set aside annual monthly payments to buy the building for cash at the end of the 5th year. What would be the monthly amount to set aside (invested) assuming a rate of return of 12% so you can purchase the business for cash when the 5th year has been completed? Round to the nearest $.

a. Future value of the asset:

b. Monthly set aside amount:

Explain briefly:

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