c. Ben bought a house for $100,000. He put 20% down and borrowed the rest from the bank. However,

the value of the house has now increased to $160,000 and he has paid off $20,000 of the bank loan.

4. Which has a higher average return over time: stocks, bonds, or a savings account? Explain your answer.

5. Investors sometimes fear that a high-risk investment is especially likely to have low returns. Is this fear

true? Does a high risk mean the return must be low?

6. What is the total amount of interest from a $5,000 loan after three years with a simple interest rate of 6%?

7. If you receive $500 in simple interest on a loan that you made for $10,000 for five years, what was the

interest rate you charged?

8. You open a 5-year CD for $1,000 that pays 2% interest, compounded annually. What is the value of that CD

at the end of the five years?

Review Questions

9. What are the most common ways for start-up firms to raise financial capital?
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