Quiz 01

Financial Management
Total Marks 30
Question 01: A man saved pennies for 65 years. When he finally decided to cash them in, he had roughly 8 million of them (or
$80,000 worth), filling 40 trash cans. On average, the man saved $1,230 worth of pennies a year. If he had deposited the pennies saved
each year, at each year’s end, into a savings account earning 5 percent compound annual interest, how much would he have had in this
account after 65 years of saving? How much more “cents” (sense) would this have meant for our “penny saver” compared with simply
putting his pennies into trash cans?

Question 02: Osama Qadeer is considering two different savings plans. The first plan would have her deposit $500 every six
months, and she would receive interest at a 7 percent annual rate, compounded semiannually. Under the second plan she would
deposit $1,000 every year with a rate of interest of 7.5 percent, compounded annually. The initial deposit with Plan 1 would be made
six months from now and, with Plan 2, one year hence.
a. What is the future (terminal) value of the first plan at the end of 10 years?
b. What is the future (terminal) value of the second plan at the end of 10 years?
c. Which plan should Osama use, assuming that her only concern is with the value of her savings at the end of 10 years?
d. Would your answer change if the rate of interest on the second plan were 7 percent?

Question 03: Write a brief note on: Future Value, Objectives of Financial Management