1. The day you were born your parents started a $1,000 bank account. For the fir

Question

1. The day you were born your parents started a $1,000 bank account. For the first 8 of the account, the interest rate earned on the account was 6.9%. Since then, rates have been only 4.9%. Now at 21 years old you are ready to cash in. How much is in your account?

2. You have the following potential financial endeavor where you pay $100 a year for 11 years and then you receive $100 a year forever. (a) Calculate the present value of your payments, if the interest rate available on other deposits is 4.25% and (b) what is the present value of a $100 perpetiuty deferred for 11 years, if the interest rate available on other deposits is 4.25%.

3. $17,000 is in the bank earning interest of 0.75% per month. A $27,000 amount is needed to make a down payment on a condo. $100 per month additional savings can be made. How long will it take to accumulate the $27,000?

3. $17,000 is in the bank earning interest of 0.75% per month. A $27,000 amount is needed to make a down payment on a condo. $100 per month additional savings can be made. How long will it take to accumulate the $27,000?

Explanation / Answer

1.

For the first 8 years,

Future value = FV(rate,nper,pmt,pv,type)

= FV(6.9%,8,-1000,(0))

= $10,222.93

For the next 14 years, above calculated futurre value should be taken as present value.

Future value =FV(4.9%,8,-1000,(-10222.93))

= $24,504.25

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