Question 1
Interest and Future Value
Suppose you put $4,700 in a bank account that earns 14 percent interest compounded annually. What will your balance be after 10 years?
Please round your final answer to two decimal places.
◦ $4,701.99
◦ $0.00
◦ $3,357.14
◦ $17,423.94
Question 2
You own a healthcare business and signed a one-year contract with a celebrity for $600,000. The day after you signed the contract, however, you discovered the celebrity follows a generally unhealthy lifestyle that would reflect badly on your business. The celebrity agreed to cancel if you either paid them a lump-sum for the entire amount of the contract today or paid them $120,000 for the next 5 years, starting today. Which option would you choose? How much does that option cost in today's dollars (assuming the interest rate is 1%)?
Please round your final answer to two decimal places.
◦ Lump-sum payment, $576,588.21
◦ Lump-sum payment, $600,000.00
◦ Equal payments, $588,235.87
◦ Equal payments, $600,000.00
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