1.8 Your father gave you a gift of $20,000 forgood behavior and you wanted to in

Question

1.8 Your father gave you a gift of $20,000 forgood behavior and you wanted to invest in the stock market. How much will your investment grow in fiveyears, assuming that you earned 8% each and every year?

1.9 How much is eight $2000 payments worth to ustoday discounted at 7%?

2.0 What is the present value of $50,000discounted at 15% for 10 years?

2.1   If I made seven, $1000 payments into a401(k) account, how much would my account be   worthafter 20 years if I made 13% a year during thatinvestment?

Explanation / Answer

Calculating Future Value ofInvestment: (Using Ms-Excel "FV" Function): Interest Rate (Rate) 8% Number of Periods (Nper) 5 Present Value of your Investment (PV) -$20,000 Future Value of Investment (FV) $29,386.56 Using Formula: FV = PV (1+r)t FV = $20,000 * [1+0.08]5 FV = $20,000 * 1.469328077 FV = $$29,386.56 Calculating Present Value of AnnuityAmount (PV): (Using Ms-Excel "PV" Function): Interest Rate (Rate) 7% Number of Payments 8 Annual Payment Amount (PMT) -$2,000 Present Value of Annuity Single Sum (PV) $11,942.60 Using Formula: PV = C *[1-1/(1+r)t] / r PV = $2,000 * [1- 1/(1+0.07)8] / 0.07 PV= $2,000 * [1- 1/(1.07)8] / 0.07 PV = $2,000 * [1- 1/1.71818618] /0.07 PV = $2,000 * [1-0.582009104] /0.07 PV = $2,000 * [0.417990896] / 0.07 PV = $2,000 * 5.9712985 Present Value of Annuity Single Sum (PV)= $11,942.60 Calculating Present Value of$50,000 discounted at 15% for 10 years: (Using Ms-Excel "PV" Function): Interest Rate (Rate) 15% Number of Periods (Nper) 10 Future Value (FV) -$50,000 Present Value (PV) $12,359.24 Using Formula: PV = FV / (1+r)t PV = $50,000 / (1+0.15)10 PV = $50,000 / (1.15)10 PV = $50,000 /4.045557736 PV = $12,359.24 Calculating Future Value of Annuity(FV): (Using MS-Excel "FV"): Interest Rate (Rate) 13% Number of Payments (Nper) 20 Annual Payment (PMT) -$1,000 Future Value of your Investment after 20 years(FV) $80,946.83 Using Formual: FVt = C * [(1+r)t-1] / r FVt = $1,000 * [(1+0.13)20 -1] / 0.13 FVt = $1,000 * [(1.13)20 - 1] / 0.13 FVt = $1,000 * [11.52308776 -1] / 0.13 FVt = $1,000 *80.946828 FVt = $80,946.83 Calculating Future Value ofInvestment: (Using Ms-Excel "FV" Function): Interest Rate (Rate) 8% Number of Periods (Nper) 5 Present Value of your Investment (PV) -$20,000 Future Value of Investment (FV) $29,386.56 Using Formula: FV = PV (1+r)t FV = $20,000 * [1+0.08]5 FV = $20,000 * 1.469328077 FV = $$29,386.56 Calculating Present Value of AnnuityAmount (PV): (Using Ms-Excel "PV" Function): Interest Rate (Rate) 7% Number of Payments 8 Annual Payment Amount (PMT) -$2,000 Present Value of Annuity Single Sum (PV) $11,942.60 Using Formula: PV = C *[1-1/(1+r)t] / r PV = $2,000 * [1- 1/(1+0.07)8] / 0.07 PV= $2,000 * [1- 1/(1.07)8] / 0.07 PV = $2,000 * [1- 1/1.71818618] /0.07 PV = $2,000 * [1-0.582009104] /0.07 PV = $2,000 * [0.417990896] / 0.07 PV = $2,000 * 5.9712985 Present Value of Annuity Single Sum (PV)= $11,942.60 Calculating Present Value of$50,000 discounted at 15% for 10 years: (Using Ms-Excel "PV" Function): Interest Rate (Rate) 15% Number of Periods (Nper) 10 Future Value (FV) -$50,000 Present Value (PV) $12,359.24 Using Formula: PV = FV / (1+r)t PV = $50,000 / (1+0.15)10 PV = $50,000 / (1.15)10 PV = $50,000 /4.045557736 PV = $12,359.24 Calculating Future Value of Annuity(FV): (Using MS-Excel "FV"): Interest Rate (Rate) 13% Number of Payments (Nper) 20 Annual Payment (PMT) -$1,000 Future Value of your Investment after 20 years(FV) $80,946.83 Using Formual: FVt = C * [(1+r)t-1] / r FVt = $1,000 * [(1+0.13)20 -1] / 0.13 FVt = $1,000 * [(1.13)20 - 1] / 0.13 FVt = $1,000 * [11.52308776 -1] / 0.13 FVt = $1,000 *80.946828 FVt = $80,946.83

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