1. Complete the table Present value Rate Time Compounding Frequency Table Factor
ID: 2386444 • Letter: 1
Question
1. Complete the tablePresent value Rate Time Compounding Frequency Table Factor Future Value
$5,000 12% 2yrs Annual ? ?
$5,000 12% 2yrs Semiannual ? ?
$5,000 12% 2yrs Quarterly ? ?
$5,000 12% 2yrs Monthly ? ?
2. Cindy has decided to retire in 24 yrs. She has $30,000 available today and wants to invest the money to supplement her pension plan.
a. assume Cindy wants to accumulate $150,000 by her retirement date. Will she achieve her goal if she invests $30,000 today and earns 6%? Please show calculations to support your yes/no answer.
b. If cindy invests a total of $30,000 through a series of 24 equal annual installments at the end of the year instead of a single amount, would Cindy accumulate the desired $100,000 at the 6% annual interest? The first investment would be one year from today. Please show calculations to support answer.
3. Smith plans to choose one of 3 investments. Investment A pays $2,500 at the end of each year for 3 years. Investment B pays $8,500 at the end of 5 years. Investment C pays $1,000 at the end of each year for 4 years and pays $4,000 at the end of the 5th yr. Smith requires a rate of return of 7% on each of these investments.
a. what is the present value of Investment A
b. what is the present value of Investment B
c. what is the present value of Investment C
Explanation / Answer
She will not achieve her goal as she will accumulate only $63,519.48
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Present Value Rate Time Compounding Frequency Table Factor Future Value 5000 12.00% 2 Years Annual 1.2544 $6,272.00 5000 12.00% 2 Years Semi-Annual 1.2625 $6,312.50 5000 12.00% 2 Years Quaterly 1.2668 $6,334.00 5000 12.00% 2 Years Monthly 1.2697 $6,348.50 Question 2 Cindy has decided to retire in 24 years. She has $30,000 available today and wants to invest money to supplement her pension plan. b) Assume Cindy wants to accumulate $150,000 by her retirement day. Will she achieve her goal if she invests $30,000 today and earns 6 percent? Please show your calculations supporting your yes/no answer FV in 24 Years = 30000*(1.06^24)=$121,468.04 She will not achieve her goal as she will accumulate only 121,468.04 a) If Cindy invests a total of 30,000 through a series of 24 equal annual installments at the end of the year instead of a single amount, would Cindy accumulate the desired $100,000 at the 6 percent annual interest? The First investment would be made one year from today. Please show your calculations to support your answer </p><p> </p><p> Annual Payment = 30000/24=$1250 PMT (Payment per period) -1250 Number of Payment 24 Rate of Interest 6.00% FV in 24 Years $63,519.47 She will not achieve her goal as she will accumulate only $63,519.47 Alternatively FV= PMT x FVIF of Ordinary Annuity (24 period 6%) FV= 1250*50.81558 = 63519.48She will not achieve her goal as she will accumulate only $63,519.48
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