Linda Roy received a $218,000 inheritance after taxes from her parents. She inve
ID: 2743638 • Letter: L
Question
Linda Roy received a $218,000 inheritance after taxes from her parents. She invested it at 4% interest compounded quarterly for 3 years. A year later, she sold one of her rental properties for $228,000 and invested that money at 3% compounded semiannually for 2 years. Both of the investments have matured. She is hoping to have at least $518,000 in 7 years compounded annually at 2% interest so she can move to Hawaii.
Future Value of Inheritance Investment: $
Future Value of Rental Property Investment:$
Present Value of Final Investment:$
Future Value of Final Investment:$
Will she meet her goal?
Yes No
Explanation / Answer
Sol A) Future Value of Inheritance Investment: As linda Roy received a $218,000 & she invested it at 4% interest compounded quarterly for 3 years. therefore PV=$218,000 I=1%per quarter(4%p.a compounded quarterly) N =12 (3*4periods in a year)
so, FV = PV(1+i)^n PV = Present value I= Intrest rate N=no. of periods FV=Future value
FV = $218,000(1+.01)^12
= $245,648
so, Future Value of Inheritance Investment: $245,648
Sol B) Future Value of Rental Property Investment PV= $228,000 I=1.5%semi annually(3%p.a) N= 4 (2*2period in a year) using the above formula
FV = $228,000(1+.015)^4
= $241,991 .
so,Future Value of Rental Property Investment:$241,991
Sol C) Present Value of Final Investment:
Investment = $487,639 ($245,648+$241,991) N =3 years I=2%
So, PV= FV/(1+i)^n
PV= $487,639/(1+.02)^3
= $487,639/1.0612
= $459,513
so, the Present Value of Final Investment $459,513
Sol D) Future Value of Final Investment :
present value of the investment $459,513 I=2% N=7 using the formula of future value
FV = PV(1+i)^n
FV = $459,513(1+.02)^7
= $459,513(1.1487)
= $527,836
so, the future Value of Final Investment is $527,836
Yes, she will meet her goal
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