Question

1. Determine the future value on a savings of $5,000 for 6 years (N) compounded quarterly, at 3% per annum. 2. Determine and compare using same information on #1 above but compounded monthly 3. You have an opportunity to invest your $25,000.00, in a local company that has offered to pay you 8% in the first year, and 9% in the second year. What is the total principal and interest at the end of the second year? Note that interest payments are done at the end of each period (year). 4. Related to Question 3 above, determine and compare, for the same two-year period, if a local bank has made you a counter offer to keep your $25,000.00 in the bank and promises to pay you 8.5% interest per annum, compounded quarterly. Would you accept this offer from the bank, when compared to the offer made on Question 3? 5. Calculate the average annual interest rate of an initial investment of $25,000.00, and future value of $30,000.00, for 3 years (N).

Answer 1

А B D E F G H J 1 1 comounding interest Nm 0.75 % 24 n 4 5 future value 5982.068 6 7 2 not compounding 8 9 monthly interest rate 10 monthly interest amount 11 total interest 12 total amount receipt 13 0.25 % 12.5 900 using the compound interesting an additional amount of 82.07 can be earned 5900 14 15 year 3 cashflow 1 2000 2 2250 16 total principle and interest amount 29250 17 18 25000 N 19 total 29250 20

21 22 4 offer from the bank at 8.5% compounded quarterly 23 24 future value of 25000 rate for the quarter 2.125 25 n 8 26 fututre value 29579.89 27 28 the offer from the bank is best option which company could have as the bank offer will produce 29 additional 329.89 30 31 5 future value 30000 32 present value 25000 33 3 34 35 future value = present value *(1+r)^n 30000=25000*(1+r)^3 30000/25000 = (1+r)^3 36 37 30000/25000=1.2 (1+r)^3 1.2 r=(1.2^(1/3))-1 38 0.062659 39 6.27% (rounding off) n r r