Question

The Hippie Food Store is planning a major expansion for 4 quarters (a year) from today. In preparation for this, the company is setting aside $50,000 each quarter, starting today, for the next 3 quarters, 4 amounts in total. How much money will the firm have when it is ready to expand if it can earn an average of 6 percent on its savings?

A kid has decided to save 20% of his “paper-round” weekly pay, or $10 in an online appthat invests small amounts in the stock market. If the kid makes her first deposit today, and does the same for the rest of the year, how much will she have at the end of the year if the average weekly returnon the broad stock market is expected to be .134% (you should assume 52 weeks in a year, AND she makes 52 deposits at the beginning of each week)?

Answer 1

1]

Future value of annuity due = P * (1 + r) * [(1 + r)n - 1] / r

where P = periodic payment. This is $50,000

r = periodic rate of interest. This is (6%/ 4) = 1.5%. We divide by 4 since we need to convert the annual rate into a quarterly rate)

n = number of periods. This is 4

Future value = $50,000 * (1 + 1.5%) * [(1 + 1.5%)4 - 1] / 1.5%

Future value = $207,613.35

The firm will have $207,613.35

2]

Future value of annuity due = P * (1 + r) * [(1 + r)n - 1] / r

where P = periodic payment. This is $10

r = periodic rate of interest. This is 0.134%. W

n = number of periods. This is 52

Future value = $10 * (1 + 0.134%) * [(1 + 0.134%)52 - 1] / 0.134%

Future value = $538.89

She will have $538.89 at the end of the year