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2/9/2014

Quiz Feedback | Coursera

Feedback — Assignment 1

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Thank you. Your submission for this quiz was received.

You submitted this Assignment on Sun 9 Feb 2014 3:32 AM PST. You got a score of 95.00 out of 100.00.

Please read all questions and instructions carefully. Note that you only need to enter answers in terms of numbers and without any symbols (including $, %, commas, etc.). Enter all monetary answers to the nearest dollar (no decimal/cents) and all interest rates to the nearest on hundredth of a percent (two decimal places). Read the syllabus for examples. The points for each question are listed in parentheses at the start of the question, and the total points for the entire assignment add up to 100.

Question 1 (5 points) $100 today is worth the SAME as $100 tomorrow. Your Answer

Score

Explanation

5.00

Correct. You understand time value

True False



Total

5.00 / 5.00

Question Explanation We have assumed that time value of money is positive.

Question 2 (5 points) At an interest rate of 10% it is better to have $100 today than $120 in 2 years. Your Answer

True



Score

Explanation

5.00

Correct; it is compounding!

False https://class.coursera.org/introfinance-005/quiz/feedback?submission_id=62806&sig_reload=1

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Total

5.00 / 5.00

Question Explanation All about compounding!

Question 3 (5 points) Shawn wants to buy a new telescope. He estimates that it will take him one year to save the money and that the telescope will cost $200. At an interest rate of 6%, how much does Shawn need to set aside today to purchase the telescope in one year? (Enter just the number without the $ sign or a comma) You entered: 189

Your Answer 189



Total

Score

Explanation

5.00

Correct, You know it has to be less than $200.

5.00 / 5.00

Question Explanation Simple PV calculation.

Question 4 (10 points) Johnny and Darren both earn $100 working on their respective neighbors' big farms. Johnny puts his $100 in the piggy bank that his parents gave him to encourage him to save. Darren puts his money in a savings account his parents set up for him. The savings account pays 3% interest. They both take their money out after 5 years. How much more money does Darren have than Johnny? Your Answer 16

10



Score

Explanation

10.00

Correct. You know how to calculate FV and intuitively know that the interest has to be only slightly more than $15 because the interest rate is low.

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10 19 3 Total

10.00 / 10.00

Question Explanation A simple future value calculation. You should see that Darren will earn at least $15 even without compounding.

Question 5 (10 points) Your dad invested $25 for you 70 years ago in a fund and you have not withdrawn any money since. If the fund has averaged a return of 8 percent over the last 70 years, what is the current value of that investment? (Round to the nearest whole dollar; enter just the number without the $ sign or a comma) You entered: 5465

Your Answer 5465



Total

Score

Explanation

10.00

Correct. You know how to accurately calculate FV.

10.00 / 10.00

Question Explanation Simple FV calculation. The amount has to be at least $165 even if you ignore compounding because so many years have passed.

Question 6 (10 points) Bridgette’s grandparents opened a savings account for her and placed $500 in the account. The account pays 3.5% interest. Bridgette wants to be a singer and she has her heart set on a new karaoke machine. The machine costs $150. How much less will the account be worth in 8 years if she buys the karaoke machine now versus leaving the account untouched? https://class.coursera.org/introfinance-005/quiz/feedback?submission_id=62806&sig_reload=1

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(Enter just the number without the $ sign or a comma; round to the nearest whole dollar.) You entered: 198

Your

Score

Explanation

10.00

Correct. You know that it has to be more than $150, and

Answer 198



actually by at least $42. Total

10.00 / 10.00

Question Explanation Again a simple FV calculation, but need to read the question carefully to save time and calculate it only once.

Question 7 (10 points) Joe is getting ready to buy a car. He has $20,000 in investments earning 4.9% annually. The car also costs $20,000. If he doesn’t pay cash for the car, Joe can get a loan at 2.9% interest for 5 years. The loan is structured so that Joe pays one balloon payment at the end of 5 years. The balloon payment includes the principal plus all interest accrued over 5 years. If Joe takes the loan will he have enough money available from his investments to make the balloon payment? How much will he be short/have to spare? Your Answer

Score

Explanation

10.00

Correct decision and correct calculation.

No; 2082 Yes; 2331



Yes; 5404 No; 5404 Yes; 2082 No; 2331 Total

10.00 / 10.00

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Question Explanation How to properly calculate the difference in two future values.

Question 8 (15 points) Juan has $100,000 to invest and he has narrowed down his decision to two investments. Option A returns 60% annually for 4 years, but the maximum investment he can make is $10,000. Option B returns 12% annually for 4 years and would require the entire $100,000. Which option produces the best result for Juan and what is the benefit over the lesser option? Assume that the $90,000 not invested in Option A would be placed in a safe deposit box earning no interest. Your Answer

Score

Explanation

10.00

Wrong decision, correct calculation, Be careful.

Option A; 19373 Option B; 1816 Option A; 9532 Option B; 9532 Option B; 19373 Option A; 1816



Total

10.00 / 15.00

Question Explanation Slightly more involved, again multi-step future value problem.

Question 9 (15 points) Rondo is in the market for a new car. He has narrowed his search down to 2 models. Model A costs $32,000 and Model B costs $28,000. With both cars he plans to pay cash and own them for 4 years before trading in for a new car. His research indicates that the trade in value for Model A after 4 years is 60% of the initial purchase price, while the trade in value for Model B is 45%. The interest rate is 5%. For simplicity assume that operating and maintenance costs for the models are identical. Which model is the better decision and how much "cheaper" is it than the alternative? https://class.coursera.org/introfinance-005/quiz/feedback?submission_id=62806&sig_reload=1

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Your Answer

Score

Explanation

15.00

Right decision, and right calculation based on net

Model B; 1207 Model A; 4000 Model B; 1430 Model A;



1430

costs.

Model A; 1257 Model B; 4000 Total

15.00 / 15.00

Question 10 (15 points) College tuition has been rising at a rate of 7% per year. Currently the average tuition of a state college is $9,500/year. Andrea’s son Trevor will begin college in 12 years. Andrea’s portfolio is making 5% annually. How much does Andrea need to have set aside today/now to pay for 4 years of college for Trevor? (Note:Tuition will continue to change annually and Andrea’s portfolio balance will continue to accrue interest while Trevor is in school. Also, tuition is due at the beginning of each year.) Your Answer

Score

Explanation

15.00

Correct. There are many ways to do this. But, given your current knowledge, it is best to do FVs of each tuition and then PVs of the

75400

58905

87432  49035

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same and simply add them up. Total

15.00 / 15.00

Question Explanation This is a multi-step calculation; and the most involved one. It should have more than 15 points, but then you could easily get less than 70% on the assignment if you got this wrong.

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