Problem #2 (2 points) What is the present worth of a future payment of $18,000,

Question

Problem #2 (2 points) What is the present worth of a future payment of $18,000, six (6) years from today at an interest rate ofsix percent (6%) compounded annually? Problem #3 (4 points) (a) What is the amount of interest earned on $63,500 left on deposit for nine (9) years at six percent (6%) simple interest per year? (b) If the nominal interest rte is seven percent (7%) compounded continuously what is the effective interest rate? Problem #4 (3 points) You deposit $1350 today, $1500 one (1) year from today, and $1900 six (6) years from today. How much money will you have at the end of eight (8) years given an interest rate of five percent (5%) compounded annually?

Explanation / Answer

Answer to Problem #2

Future Value = $18,000
n = 6 years
r = 6%

Future Value = Present Value * (1 + r) ^ n
18,000 = Present Value* (1 + 0.06) ^ 6
18,000 = Present Value* (1.06) ^ 6
$18,000 = Present Value * 1.4185
Present Value = $12,689.46

Answer to Problem #3
Part a)

Simple Interest = Principal * Rate * Time
Simple Interest = $63,500 * 6% * 9
Simple Interest = $34,290

Part b)

Accumulated Sum = Principal * e^(r * t)
Accumulated Sum = $63,500 * e^(0.07 * 9)
Accumulated Sum = $119,228.27

Interest Earned = $119,228.27 - $63,500
Interest Earned = $55,728.27

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