Question

Answer each of the following independent questions. Ignore personal income taxes Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required 1. Suppose you invest $4.000 in an account bearing interest at the rate of 20 percent per year. What will be the future value of your 7 investment in five years? 2 Your best friend won the state lottery and has offered to give you $11,500 in six years, after he has made his first million dollars. You 3. In four years, you would like to buy a small cabin in the mountains. You estimate that the property will cost you $67,500 when you 4. You have estimated that your educational expenses over the next four years will be $14,500 per year. How much money do you figure that if you had the money today, you could invest it at 14 percent annual interest. What is the present value of your friend's future gift? are ready to buy. How much money would you need to invest each year in an account bearing interest at the rate of 6 percent per year in order to accumulate the $67,500 purchase price? need in your account now in order to withdraw the required amount each year? Your account bears interest at 10 percent per year. Complete this question by entering your answers in the tabs below. References interest at the rate of 20 percent per year. What will be the future Suppose you invest $4,000 in an account your

Answer 1

1) here we can use simple interest method:

SI = PRN/100 where P=principal amt R= rate of interest N= no. of yrs

here, P= 4000 R= 20% N= 5yrs

SI = 4000*20*5/100

= 4000

Amount after 5yrs = SI + P

= 4000 + 4000

= 8000

2) use formula of compound interest

A = P (1+ r/n)^t where, A= amount P= principal amount r=rate of interest n=no. of times interest is incurred in a yr

t= time period

here, A=11500 P=? r=14% n=1 t=6yrs

11500 = P (1+ 0.14/1)^6

11500 = P (1.14)^6

11500 = P (1.93)

P = 11500 / 1.93 = 5958.54 approx.5959