Problem

(L. OBJ. 3) Using the time value of money to compute the present and future values of si...

(L. OBJ. 3) Using the time value of money to compute the present and future values of single lump sums and annuities [15—20 min]

Your best friend just received a gift of $6,000 from his favorite aunt. He wants to save the money to use as “starter” money after college. He can invest it (1) risk-free at 4%, (2) taking on moderate risk at 10%, or (3) taking on high risk at 16%.

Requirement

1. Help your friend project the investment’s worth at the end of four years under each investment strategy and explain the results to him.

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