# compound functions - questions

1 Determine the value of the right to receive a cottage worth \$2 500 000 in 10 years time. Use 15% pa.

2 A bank account has accumulated to 1500 000 over 10 years. What was: the original investment if the interest rate was 8% pa?

3 If \$250 000 is invested today at 12% pa will the investor be a millionaire in 15 years time?

4 \$200 is deposited in a bank account for 60 years. If the interest rate is 9% pa how much will be in the account in 60 years?

5 A block of land is bought for \$85 000. The speculator expects an average annual rate of return of 15% pa in capital gains. How much does he expect to sell the land for in 10 years time?

6 The population of Australia is expected to increase at 2.5% pa. If the population today is 22 000 000 determine the expected population in the year 2 010.

7 An investment plan requires the investment of \$25 000 for 10 years at 9% pa, then the accumulated amount is invested for another 10 years at 12% pa and finally, the total is invested for another 10 years at 15% pa. How much will be in the investment fund at the end of 30 years?

8 The same time periods and rates of interest apply as above. If the final amount was \$1000 000, how much was the original amount?

9 A shop is subject to a lease with 10 years to run. The market value of the shop today is \$650 000 assuming vacant possession. What is the reversionary value using 15%pa?

10 An investor pays \$1000 000 for the reversionary interest of a factory, due in 10 years. If the value of the factory assuming vacant possession today, is 2 500 000, what is the discount rate per annum?

11 You have the choice of \$1000 in one year, 1500 in 18 months, 900 today or 2 000 in 3 years. Using 12% per annum, which option would you choose?

12 An estate of \$200 000 Is invested in a trust fund at 12% per annum. Under the trust deed 3 children will receive EQUAL amounts on the attainment of their majority (21 years).

How much will each child receive if their current ages are 13,15 and 19 years?

13 Determine the effective annual rate for the following nominal rates:

• 21 % per annum payable daily

• 21 % per annum payable monthly

• 21 % per annum payable quarterly

• 21 % per annum payable half yearly.

14 What is the effective monthly equivalent to 21 % per annum effective?

15 What do the symbols "n", "i", "PMT', "PV" and "FV" mean on a financial calculator?

16 What do the special functions PV and =FV mean on computer spreadsheets?

How are they used?

17 Why does the financial calculator show the PV answer as a negative amount?