Internet Application Problems


1		Fidelity Investments presents an interactive and very instructive chart as part of its Growth Calculator. Each column in the chart breaks down the future value of a simple annuity due at the end of each year into three components: "invested capital, simple earnings, and compound earnings". Simple earnings represent interest earned on invested capital on a simple interest basis. Compound earnings represent interest earned on converted interest. As you change the value for any input variable by moving its "slider," you can watch the impact on each component. (Data may also be entered manually.) When you move the cursor over any column of the chart, the dollar amount is displayed.



2		The "Car Lease Calculator" allows you to calculate the monthly payment or the residual value or the interest rate if you first enter values for the other five variables. While such "calculators" are convenient and efficient, you should also be able to do the calculations working from the fundamental relationship developed in this section.



3		Components of the Future Value of an Annuity Due: Go to Fidelity Investments' Growth Calculator referred to in the "Net @ssets" box starting on page 481 in your textbook. A sample of the chart you will find at the Web site is shown on page 520 of your textbook. (You may need to click on the Reset button to make the chart appear.) Each column in the chart shows the components of the future value of a simple annuity due at the year-end. Fidelity refers to the three components as invested capital, simple earnings, and compound earnings. Simple earnings represent interest earned on invested capital on a simple interest basis. Compound earnings represent interest earned on converted interest.

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