7) All else held constant, the future value of a lump sum investment will decrease if the: amount of the lump sum investment increases. time period is increased. interest is left in the investment. interest rate increases. interest is changed to simple interest from compound interest. 15) Travis invests $5,500 today into a retirement account. He expects to earn 9.2 percent, compounded annually, on his money for the next 13 years. After that, he wants to be more conservative, so only expects to earn 6 percent, compounded annually. How much money will he have in his account when he retires 25 years from now, assuming this is the only deposit he makes into the account? $29,411.20 $34,747.80 $34,616.56 $41,919.67 $42,003.12 16) Eleven years ago, you deposited $3,200 into an account. Seven years ago, you added an additional $1,000 to this account. You earned 9.2 percent, compounded annually, for the first 4 years and 5.5 percent, compounded annually, for the last 7 years. How much money do you have in your account today? $8,666.67 $7,717.29 $7,411.90 $8,708.15 $8,073.91 17) When you were born, your parents opened an investment account in your name and deposited $1,500 into the account. The account has earned an average annual rate of return of 5.3percent. Today, the account is valued at $42,856. How old are you? 71.47 years 70.67 years 61.08 years 67.33 years 64.91 years

## Answer

Answer 7. All else held constant, the future value of a lump sum investment will decrease if the**interest is changed to simple interest from compound interest.**If Interest method is changed to simple interest then the interest is calculated on investment made instead of the balance in the account which include both interest and invement. Answer 15. For the first 13 years, interest rate is 13% and for next 12 years interest rate is 6%. So Future Value = 5500 * 1.092 ^ 13 * 1.06 ^ 12 Future Value = $34,747.80 Answer 16. Future Value of investment made 11 years ago = $3,200 * 1.092^4 * 1.055^7 Future Value of investment made 11 years ago = $6,619.23 Future Value of investment made 7 years ago = $1,000 * 1.055^7 Future Value of investment made 7 years ago = $1,454.68 Total Future value = $6,619.23 + $1,454.68 = $8,073.91 Answer 17. Let n be the age. So, $1,500 * 1.053^n = $42,856 1.053^n = 28.571 n = ln(28.571) / ln(1.053)

n = 64.91 years