Assume you make the following investments: a. You invest a lump sum of $7,250 fo

Question

Assume you make the following investments: a. You invest a lump sum of $7,250 for five years at 14% interest. What is the investment's value at the end of five years? b. In a different account earning 14% interest, you invest $1,450 at the end of each year for five years, what is the investment's value at the end of five years? c. What general rule of thumb explains the difference in the investments' future values? (Click the icon to view the future value annuity factor table.) (Click the icon to view the present value annuity factor table.) Click the icon to view the future value factor table.) Click the icon to view he present value actor table. a. You invest a lump sum of $7,250 for five years at 14% interest. What is the investment's value at the end of five years? (Round your answer to the nearest whole dollar) investment's value=$ 13,956 b. In a different account earning 14% interest you invest $1,450 at the end of each year for five years. What is the investment's value at the end of five years? Round your answer to the nearest whole dollar. Investment's value Enter any number in the edit fields and then click Check Answer.

Explanation / Answer

1

From the table future value of $1 we see row corresponding to 5 periods and column of 14% we see 1.925

So, future value of 7250=7250*1.925=13956.25

2

From the table future value of annuity of $1 we see the row correspondig to 5 periods and 14% we see 6.610

So, future value of 1450 for 5 years=1450*6.610=9584.5

Ruile of thumb

Rule of 72- if you invest at interest rate of r, 72/r will be the time required to double the money

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