ZuoTi.Pro
Question

16. You receive a $36,000 inheritance that you want to invest. Determine which of the following options is best and explain w How do I determine which equation to use to solve? Future Value? Present Value? Compound Interest?
business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

We need to calculate Future Value of Investment in order to find out which option is best.

Option 1 - Invest $36,000 today at 3% compounded annually for 3 years.

Futur Value of Investment at the end of Year 3 = $36,000 * (1 + 0.03)3

= $36,000 * 1.092727

= $39,338.172

Option 2 - Invest $1,000 monthly for 36 months at 3% compounded monthly.

It is called Ordinary Annuity. Ordinary Annuity is a series of payment for specified period of time. Here series is 1,000 monthly. and specified period is for 36 months.

Monthly rate of interest = 3% / 12 = 0.25%

Future Value of Ordinary Annuity = $1,000 * ((1 + 0.0025)36 - 1) / 0.0025

= $1,000* 37.62056

= $37,620.56

Hence, the best option is Option 1.

0 0
Add a comment
Know the answer?
Add Answer to:
How do I determine which equation to use to solve? Future Value? Present Value? Compound Interest?...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Math 115 Section 2.3 Example 6. You want to start saving for retirement. Determine which of...

    Math 115 Section 2.3 Example 6. You want to start saving for retirement. Determine which of the folloving options is the best and erplain why*. (*You must show mathematical support/evidence to back up your conclusion.) Op n #1: $300 is taken from your paycheck each month and placed in a retirement fund at tio an annual rate of 4% compounded monthly for the next 25 years. . Option #2: $3,400 is taken from your paycheck annually and placed in a...

  • Use Future Value and Present Value Tables 1.Cathy Lumbattis inherited $140,000 from an aunt. If Cathy...

    Use Future Value and Present Value Tables 1.Cathy Lumbattis inherited $140,000 from an aunt. If Cathy decides not to spend her inheritance but to leave the money in her saving account until she retires in 15 years, how much money will she have, assuming an annual interest rate of 8% compounded semiannually.                   2. LuAnn Bean will receive $7,000 in 7 years. What is the present value at 7% compounded annually? 3. Ed Walker wants to save some money so...

  • 4. Finding the interest rate and the number of years The future value and present value...

    4. Finding the interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security currently worth $12,800 will be worth $16, 124.31 three years in the future, what is the implied interest rate the investor will earn on the security-assuming that no additional deposits or withdrawals are made? 8.00% 6.40% 7.94% 1.26% for this...

  • 7. Use the present value formula or the future value table to determine the rate of...

    7. Use the present value formula or the future value table to determine the rate of return for each of the specified investments. A. Assume an investment of$30,000 today is expected to mature in ten years with a value of $59,010. What is the annual rate of return (r) that will be earned on this investment? B. Assume a business is considering an investment of $20,000 that will grow to $36,000 in eight years. The business requires a 7 percent...

  • (Future value)  You are hoping to buy a house in the future and recently received an...

    (Future value)  You are hoping to buy a house in the future and recently received an inheritance of ​$24,000. You intend to use your inheritance as a down payment on your house.a.  If you put your inheritance in an account that earns 8 percent interest compounded​ annually, how many years will it be before your inheritance grows to ​$31,000​? b.  If you let your money grow for 9.5 years at 8 percent​, how much will you​ have?c.  How long will...

  • Which formula do I use to solve the following? Future Value, Future Value Ordinary Annuity, Futur...

    Which formula do I use to solve the following? Future Value, Future Value Ordinary Annuity, Future Value Annuity Due, Present Value, Present Value Ordinary Annuity, or Present Value Annuity Due? 13. Two investors- Investor "C" starts investing $400 a month at the beginning of each month at age 31 to age 70 (40 years) earning 7% per year. Investor "D" invests $4,800 a year at the beginning of each year at age 22 to age 33 (12 years) earning 7%...

  • Exercise C-6 Calculate the future value of an annuity (LOC-3) GMG Studios plans to invest $49,000...

    Exercise C-6 Calculate the future value of an annuity (LOC-3) GMG Studios plans to invest $49,000 at the end of each year for the next five years. There are three investment options available Interest Annual Rate Compounded Invested Annually Annually Annually Period Option 1 Option 2 Option 3 5% 5 years 5 years 5 years 10 Required Determine the accumulated investment amount by the end of the fifth year for each of the options. (FV of $1, PV of $1,...

  • Exercise C-6 Calculate the future value of an annuity (LOC-3) GMG Studios plans to invest $54,000...

    Exercise C-6 Calculate the future value of an annuity (LOC-3) GMG Studios plans to invest $54,000 at the end of each year for the next three years. There are three investment options available. Period Annual Interest Compounded Annually Annually Annually Invested Rate Option 1 Option 2 Option 3 78 3 years 9 3 years 3 years 11 Вook Required: Determine the accumulated investment amount by the end of the third year for each of the options. (FV of $1, PV...

  • Check my work Exercise C-6 Calculate the future value of an annuity (LOC-3) GMG Studios plans...

    Check my work Exercise C-6 Calculate the future value of an annuity (LOC-3) GMG Studios plans to invest $48,000 at the end of each year for the next four years. There are three investment options available. Option 1 Option 2 Option 3 Annual Rate 6% 8 12 Interest Compounded Annually Annually Annually Period Invested 4 years 4 years 4 years Required: Determine the accumulated investment amount by the end of the fourth year for each of the options. (FV of...

  • n1 Use the model A - Pe" or A-P where A is the future value of...

    n1 Use the model A - Pe" or A-P where A is the future value of P dollars invested at interest rater compounded continuously or n times per year for years. Victor puts aside $10,000 in an account with interest compounded continuously at 2.2%. How long will it take for him to earn $2000? Round to the nearest month. It will take approximately years and months for him to earn $2000. where A is the future value of P dollars...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT