Question

For each problem below, write out the formula that is needed to calculate the answer and then write the answer below it. Example: You put $100 into an investment fund every year and then add another $200 at the end of year 3. If the fund provides a rate of return of 5%, how much money will be available for you to withdraw in year 5? Answer: $100(F/A, 5%, 5) + $200(F/P,5%, 2) $773.06 1) You have just invested a one-time amount of $5,000 in a stock-based mutual fund. This fund should earn (on average) 9% per year over a long period of time. How much will your investment be worth in 35 years? 2) A 12-cylinder heavy-duty diesel engine will have a guaranteed residual value of $1,000 in five years. Today (year 0) the equivalent worth of this engine is how much if the interest rate is 9% per year? 3) You just inherited $10,000. While you plan to squander some of it away, how much should you deposit in an account earning 5% interest per year if you want to have $10,000 in the account in 10 years? 4) Your spendthrift cousin wants to buy a fancy watch for $425. Instead, you suggest that she buy an inexpensive watch for $25 and save the difference of$400. Your cousin agrees with your idea and invests $400 for 40 years in an account earning 9% interest per year. How much will she accumulate in this account after 40 years have passed? 5) What is the present equivalent of $18,000 to be received in 15 years when the interest rate is 7% per year?

Answer 1

Am vestment worth in 35 years y $ 5000 (1+509)35 $ 1000 x 20.413968 10 2069.84 a Equivalent worth Today (year o) $1000 $1000 (17.09)5 1.53 8624 * $ 649.93 Amoumrlobe. deboiled $ 10000 17.05) $10000 16288946 $6139.13 Amount accumulated $400 (17.0940 im account of let 40 years 3 $ 400 x 31.409 42. - 8 12563.77 5. Prenie cook fquivalmke_$100. $18000 value (17.07) $ 18000 +86524.03 2.7590315 Conclusion - Present Values in future Value is interest Rate - un snoole oy Future Value z Reee semt Value (Iti) yo

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