VAUR 10.00 points wa You want to invest $10,000 in a business opportunity. If yo
ID: 2530094 • Letter: V
Question
VAUR 10.00 points wa You want to invest $10,000 in a business opportunity. If you keep the money invested in the business for two years, you will receive $11,000 back. If you keep the money invested in the business for five years, you will receive $13,000 back. Currently the money is in your savings account which earns 5% interest compounded annually (Future Value of $1. Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) (Use appropriate factor from the PV tables.) el S Future Value Annaiy oueas smeetompa tor tie yeasou a. What is the future value of the money if it remains in your savings account for two years? (Round your answer to the nearest dollar amount.) b. What is the future value of the money if it remains in your savings account for five years? (Round your answer to the nearest dollar amount.)Explanation / Answer
Solution A: $11,025
Money in bank= $10,000
Interest rate = 5% compounded annually
No. of Years =2
Future value of $1 at 5% compounded annually= 1.1025
Future value of $10,000 at 5% compounded annually after 2 years= $10,000 * 1.1025 = $11,025
Solution B: $12,762.82
Money in bank= $10,000
Interest rate = 5% compounded annually
No. of Years =5
Future value of $1 at 5% compounded annually after 5 years= 1.2762815
Future value of $10,000 at 5% compounded annually= $10,000 * 1.2762815= $12,762.82
Solution C: $17,908.48 (Option 4)
Monthly deposit in bank= $1,000
Interest rate = 6% compounded annually
No. of Years =10
Amount is $13,181
Working Note:
- Amount deposit at Year 1 end will attract interest for 9 years.
- Amount deposited at year 10 end will not attract any interest income since we are calculating the total money after 10 years.
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Amount deposited 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 Future value factor of $1 at 6% 1.6895 1.5938 1.5036 1.4185 1.3382 1.2625 1.1910 1.1236 1.0600 1.0000 Amount 1,689 1,594 1,504 1,419 1,338 1,262 1,191 1,124 1,060 1,000 No. of years for interest given 9 8 7 6 5 4 3 2 1 0 Total Amount 13,181Related Questions
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