Question 1) Tim Salmon intends to invest $10,000 in a trust on January 2, of eve

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Question 1) Tim Salmon intends to invest $10,000 in a trust on January 2, of every year, 2009 through 2023. He anticipates that interest rates will change during that period of time as follows: 1/2/2009-1/2/2012 10%

1/3/2012-1/2/2019 11%

1/3/2019-1/2/2023 12%

REQUIRED How much will Tim have in his trust on January 2, 2023?

Question 2) Mack Aroni, a bank robber, is worried about his retirement. He decides to start a saving account. Mack deposits his net share of the “loot” which consists of $75,000 per year, for three years, beginning January 1, 2012. Mack is arrested on January 4, 2014, (after making the third deposit) and spends the rest of 2014 and most of 2015 in jail. He escapes in September of 2015. He resumes his savings plan with semiannual deposits of $30,000 each beginning January 1, 2016. Assume that bank’s interest rate was 9% compounded annually from January 1, 2012 through January 1, 2015, and 12% annual rate compounded semiannually thereafter.

Required When Mack retires on Jannuary1, 2019 (6 months after his last deposit), what is the balance in his savings account? s to accumulate $1,300,000 by December

Question 3) Mark Grace Inc. wishes to accumulate $1,300,000 by December 31, 2022, to retire bonds outstanding. The company deposits $300,000 on December 31, 2012, which will earn interest at 10% compounded quarterly, to help in the retirement of this debt.

REQUIRED: Tthe company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that $1,300,000 is available at the end of 2022. (the quarter deposits will also earn interest at a rate of 10%, compounded quarterly.)

Explanation / Answer

(1)

At beginning of 2012, balance in fund ($) = 10,000 x FVIFA(10%, 3) = 10,000 x 3.31 = 33,100

At beginning of 2019, balance in fund ($) = 33,100 x FVIF(11%, 7) + 10,000 x FVIFA(11%, 7)

= 33,100 x 2.0762 + 10,000 x 9.7833 = 68,720.90 + 97,833 = 166,553.90

At beginning of 2023, balance in fund ($) = 166,553.90 x FVIF(12%, 4) + 10,000 x FVIFA(12%, 4)

= 166,553.90 x 1.5735 + 10,000 x 4.7793 = 262,072.56 + 47,793 = 309,865.56

So, balance at Jan 2, 2023 = $309,865.56

Note: First question is answered.

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