Calculating Rates of Return

Answer only problem # 8, 17, and 18. (#9 is just a go by for question #17)

8. Calculating the Number of Periods. Calculating Rates of Return. In 2011, an 1880-O Morgan silver dollar sold for $13,113. What was the rate of return on this investment?

9. Calculating the Number of Periods. You’re trying to save to buy a new $150,000 Ferrari. You have $35,000 today that can be invested at your bank. The bank pays 3.2 percent annual interest on its accounts. How long will it be before you have enough to buy the car?

17. Calculating Present Values. Suppose you are still committed to owning a $150,000 Ferrari (see Question 9). If you believe your mutual fund can achieve a 10.25 percent annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?

18. Calculating Future Values. You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn a 10.1 percent rate of return and make no additional contributions, what will your account be worth when you retire in 45 years? What if you wait 10 years before contributing? (Does this suggest an investment strategy?)

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