Need relevant answers being explored are for a period of 10 years. Help the comp
ID: 1221739 • Letter: N
Question
Need relevant answers
being explored are for a period of 10 years. Help the company choose the best investment opportunity 10% compounded quarterly. 9.85% compounded daily 9.95% compounded monthly 9.80% compounded continuously. 1. 1V. 7. Ben Marlin is interested in having an inheritance of $100,000 doubled in 5 years. What interest rate should he get if the interest rate is compounded monthly? 8. Jessica borrowed $3,000 from Ms. Devoe and promised to pay her $3,405 after 1.5 years. What simple interest rate did she have in mind? 9. Dr. Mullen borrowed a sum of $5,000 from his colleague Dr. Chan and after three years paid a sum of $5,000 and paid another $1000 after 4 years to pay off the loan. Determine the interest rate Dr. Mullen paid if the payments were based on yearly compounding. 10. Determine the value of "Y” from the cash flows given in table below at an interest rate of8%. 0 2 700 4 900 Y ear Cash flows|-10,000 +Y 600 800 900Explanation / Answer
(6)
Future value (FV) = Investment x Future value interest factor (FVIF)
We have to compute the FVIF for each of these compounding periods and rates. The option with highest value of FVIF is the best option since value of FV will be the highest.
FVIF(r%, N) = (1 + r)N
(i)
10% per year = 10% / 4 = 2.5% per quarter
Number of quarters = 4 x 10 = 40
FVIF(2.5%, 40) = (1.025)40 = 2.6851
(ii)
9.85% per year = 9.85% / 365 = 0.0270% per day
Number of days = 365 x 10 = 3,650
FVIF(0.027%, 3,650) = (1.00027)3,650 = 2.6788
(iii)
9.95% per year = 9.95% / 12 = 0.83% per month
Number of months = 12 x 10 = 120
FVIF(0.83%, 120) = (1.0083)120 = 2.6963
(iv)
FVIF(9.8%, 10) = e(r x t) = e(0.098 x 10) = e0.98 = 2.6645
Since FVIF is highest for option (iii), this option is best.
Note: First question is answered.
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