Question

Question 7 (1 point)

Your brother has asked you to help him with choosing an investment. He has $6,400 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 0.0500 annually with the interest being paid quarterly. What will be the value of the investment in two years? Round to two decimal places.

Question 8 (1 point)

You are evaluating a growing perpetuity product from a large financial services firm. The product promises an initial payment of $22,000 at the end of this year and subsequent payments that will thereafter grow at a rate of 0.04 annually. If you use a discount rate of 0.09 for investment products, what is the present value of this growing perpetuity? Round to two decimal places.

Answer 1

As per the HOMEWORKLIB RULESs for multiple unrelated question answering first question only.

The value of investment for n periods, at an interest rate of i for an initial deposit of D is given as below

.$Value = D*(1+i)^n$

Given that the interest rate annually is 0.05, the interest rate for each quarter becomes 0.05/4 = 0.0125. We need to find the value of investment for two years. As there are 4 quarters in each year, total number of quarters in 2 years is 8

Hence we have number of periods = 8, interest rate per period = 0.0125 and initial investment is 6400. Hence the value after 2 years is

$Value = 6400*(1+0.0125)^8 = 6400*(1.0125)^8 = 6400*1.104486$

$Value = 7068.71$

Hence the value of the investment after 2 years will be 7068.71