Katina Washington is currently employed as a computerprogrammer by Megatel Compa

Question

Katina Washington is currently employed as a computerprogrammer by Megatel Company. Her dream, however, is tostart her own computer software firm. To provide cash tostart her own business in six years she will invest 10,000today. She thinks the investment will earn a 12% annualreturn. a. How much would Katina have in her account at the endof six years if she earns 12% on the investment? How much ofthis would be interest earned during the six years? b. Assume, instead, that Katina has decided she needs20,000 to begin business. She wants to invest equal amountsat the end of each year for the next six years to accumulate the20,000 needed at that time. i. How much must be invested each year, assuming that itearns 12% interest? ii. How much will the investment be worth at the end ofeach of the next six years? iii. How much will Katina have put into the account overthe six years? iv. How much interest will be earned over the sixyears? Katina Washington is currently employed as a computerprogrammer by Megatel Company. Her dream, however, is tostart her own computer software firm. To provide cash tostart her own business in six years she will invest 10,000today. She thinks the investment will earn a 12% annualreturn. a. How much would Katina have in her account at the endof six years if she earns 12% on the investment? How much ofthis would be interest earned during the six years? b. Assume, instead, that Katina has decided she needs20,000 to begin business. She wants to invest equal amountsat the end of each year for the next six years to accumulate the20,000 needed at that time. i. How much must be invested each year, assuming that itearns 12% interest? ii. How much will the investment be worth at the end ofeach of the next six years? iii. How much will Katina have put into the account overthe six years? iv. How much interest will be earned over the sixyears?

Explanation / Answer

(a) Calculating FutureValue of Invenstment Amount : Interest Rate (Rate) 12% Number of Periods (Nper) 6 Present Value of Investment Amount (PV) -$10,000 Future Value of Investment Amount(FV) $19,738.23 Interest earned = [$19,738.23 - $10,000] Interest earned = $9,738.23 (b) (i) Calculating each year InvestmentAmount: Interest Rate 12% Number of periods (Nper) 6 Future Value (FV) -$20,000 Each year Investement for 6 years(PMT) $2,464.51 (iii) $2,464.51 * 6years =$14,787.06 (iv) Interest Amount earned = [ $20,000- ($2,464.51 * 6years) ]     Interest Amount earned = [$20,000 - 14,787.06]      Interest Amount earned =$5,212.94 (a) Calculating FutureValue of Invenstment Amount : Interest Rate (Rate) 12% Number of Periods (Nper) 6 Present Value of Investment Amount (PV) -$10,000 Future Value of Investment Amount(FV) $19,738.23 Interest earned = [$19,738.23 - $10,000] Interest earned = $9,738.23 (b) (i) Calculating each year InvestmentAmount: Interest Rate 12% Number of periods (Nper) 6 Future Value (FV) -$20,000 Each year Investement for 6 years(PMT) $2,464.51 (iii) $2,464.51 * 6years =$14,787.06 (iv) Interest Amount earned = [ $20,000- ($2,464.51 * 6years) ]     Interest Amount earned = [$20,000 - 14,787.06]      Interest Amount earned =$5,212.94

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