%) E1226A (similar to) Solve various time value of money scenarios. (Click the i
ID: 2579953 • Letter: #
Question
%) E1226A (similar to) Solve various time value of money scenarios. (Click the icon to view the scenarios.) Question Help (Click the icon to view the present value factor table,) (Click the icon to view the future value factor table.) (Click the icon to view the present value annuity factor table.) (Click the icon to view the future value annuity factor table.) Scenario 1 . Suppose you invest a sum of $3 500 In an interest-bearing account at he rate o 14% per year. What will the investment be worth sx years from now? Round your answer to the nearest whole dollar.) In six years the investment will be worth $ Scenario 2. How much would you need to invest now to be able to withdraw S6 000 at the end of every year for the next 20 years? Assume a 12% interest rate. 7,683 Round your answer to the nearest whole dollar.) The current investment amount required is $ LExplanation / Answer
Future value is calculated by compounding the Present cash flow
The formula is,
FV = Present value *(1 + r)^n
= 3500*(1 + 0.14)^6
= 3500*(1.14)^6
= 3500*(2.194972623936)
= 7682.4
So FV value of 3500 received after 6 years is 7682.40
Present value of annuity is the present worth of cash flows that is to be received in the future, if future value is known, rate of interest in r and time is n then PV of annuity is
PV of annuity= P[1- (1+ r)^-n]/ r
= 6000[1- (1+ 0.12)^-20]/ 0.12
= 6000[1- (1.12)^-20]/ 0.12
= 6000[1- 0.103666765080688]/ 0.12
= 6000[0.896333234919312/ 0.12]
= 6000[7.4694436243276]
= 44816.66
So you need to have $44816.66 in the account
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