HW03A 1. Arnold makes an investment of $ 100,000 in a bank for a period of 5 yea
ID: 2762427 • Letter: H
Question
HW03A
1. Arnold makes an investment of $ 100,000 in a bank for a period of 5 years. How much will he receive at the end of the term, if the bank pays an interest rate of 6% at Simple Interest.
2. Arnold makes an investment of $ 100,000 in a bank for a period of 5 years.
How much will he receive at the end of the term, if the bank pays an interest rate of 6%, compounded annually?
6. You have $5,000 you want to invest for the next 45 years.
You are offered an investment plan that will pay you 6 percent per year for the next 15 years and 10 percent per year for the last 30 years.
How much will you have at the end of the 45 years?
7. Isabelle wants to save up an amount of $150,000 for her son's college education fees, coming up in 5 years.
Find the amount that should be invested today, if the bank pays an interest rate of 5%, compounded annually.
.
Explanation / Answer
Answer 1 Calculation of Investment value at the end of 5th year using simple interest formula A = P (1 + rt) A = Investment value at the 5th year r = rate of interest = 6% i.e.0.06 t = tenure = 5 years P = Investment amount = $100000 A = 100000 (1 + 0.06*5) = $130000 Investment value at the 5th year = $130000 Answer 2 Future value of single sum = PV * (1+r)^n PV = Present investment = $100000 r = rate of interest =6% i.e.0.06 n = no.of years = 5 years Future value of single sum = 100000 * (1+0.06)^5 Future value of single sum = $133822.60 Amount received at the end of term = $133822.60 Answer 6 Future value of single sum = PV * (1+r)^n PV = Present investment = $5000 r = rate of interest =6% i.e.0.06 n = no.of years = 15 years Future value of single sum = 5000 * (1+0.06)^15 Future value of single sum = $11982.79 Value of the investment at the end of 15th year = $11982.79 Future value of single sum = PV * (1+r)^n PV = Present investment = $11982.79 r = rate of interest =10% i.e.0.10 n = no.of years = 30 years Future value of single sum = 11982.79 * (1+0.10)^30 Future value of single sum = $209092.50 Amount received at the end of 45th year = $209092.50 Answer 7 We need to calculate the present value of future $150000 five years from now at annualy 5% rate of interest compounded annually PV = FV * (1 + i)^-n PV = Present value = ? FV = Future value = $150000 n = no.of years = 5 i = rate of return = 4% i.e.0.05 PV = 150000 * (1 + 0.05)^-5 PV = $117528.90 Amount to be invested today = $117528.90
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.