Tutorial 1: Answer Chapter 1 ‘Chapter 1: Questions 1. Calculating the Future Value of Property. Josh Collins plans to buy a house for $210,000. If that real ‘estate is expected to increase in value by 3 percent each year, what will its approximate value be six ‘yeas from now? 2. Using the Rule of 72. Using the rule of 72, approximate the following amounts, a. Ifthe value of land in an area is increasing 6 percent a year, how long will it take for property ‘values to double? . Ifyou eam 10 percent on your investments, how long will it take for your money to double? . Afan annual interest rate of 5 percent, how long will it take for your savings to double? 3. Determining the Inflation Rate. In 2013, selected automobiles had an average cost of $16,000. The average cost of those same automobiles is now $24,000. What was the rate of increase for these automobiles between the two time periods? 6 Computing the Time Value of Money. Using a financial calculator or time value of money tables in the Chapter Appendix, calculate the following. a. The future value of $450 six years from now at 7 percent. 'b. The future value of $900 saved each year for 10 years at 8 percent. cc. The amount a person would have to deposit today (present value) at a 6 percent interest rate to have $1,000 five years from now. 4. The amount a person would have to deposit today to be able to take out $600 a year for 10 years from an account eaming & percent. 7. Calculating the Funure Value of a Series of Amounts. Elaine Romberg prepares her own income tax refum each year. A tax preparer would charge her $80 for this service. Over a period of 10 years, how ‘much does Elaine gain from preparing her own tax retum? Assume she can eam 3 percent on her savings 12. Calculating the Present Value of Future Cash Flows. A financial company advertises on television that they will pay you $60,000 now in exchange for annual payments of $10,000 that you are expected to receive for a legal settlement over the next 10 years. If you estimate the time value of money at 10, ‘percent, would you accept this offer?Chapter 2 Determining the Future Value of Education. Jenny Lopez estimates that as a result of completing her master’s degree, she will ear an additional $8,000 a year for the next 40 years. a. What would be the total amount of these additional earnings? b. What would be the firure value of these additional earnings based on an annual interest rate of 6 percent? (Use a financial calculator or Exhibit 1-B in the Chapter 1 Appendix.) Comparing Living Costs. Luke Anderson is earning $48,000 a year in a city located in the Midwest. He is interviewing for a position in a city with a cost of living 12 percent higher than where he currently lives. What is the minimum salary Luke would need at his new job to maintain the same standard of living? Computing Future Value, Calculate the future value of a retirement account in which you deposit $2,000 a year for 30 years with an annual interest rate of 5 percent, (Use a financial calculator or the tables in the Chapter | Appendix.) Comparing Employment Offers. Bill Mason is considering two job offers. Job | pays a salary of $36,500 with $4,500 of nontaxable employee benefits. Job 2 pays a salary of $34,700 and $6,120 of nontaxable benefits. Which position would have the higher monetary value? Use a 28 percent tax rate Comparing the Value of a Career Change. Marla Opper currently earns $50,000 a year and is offered a job in another city for $56,000. The city she would move to has 8 percent higher living expenses than her current city. What quantitative analysis should Marla consider before taking the new position?