Homework help needed! How to solve A. Alex Hunter wants to accumulate $14,000 by

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Homework help needed!

How to solve

A. Alex Hunter wants to accumulate $14,000 by the end of 12 years. If the annual interest rate is 8.80 percent and interest compounds semiannually, how much will she have to invest today to achieve her goal?

B. Your sister has asked you for a loan and has promised to pay you $7,250 at the end of three years. If you normally invest to earn 7.50 percent per year, how much will you be willing to lend to your brother if you view this purely as a financial transaction (i.e., you don’t give your sister a special deal)?

C. Ross Lory is considering an investment that pays 5.30 percent, compounded annually. How much will he have to invest today so that the investment will be worth $29,000 in six years?

Amount to be invested today $=

D. Birthday is next week and instead of other presents, your parents promised to give you $2,300 in cash. Since you have a part-time job and, thus, don’t need the cash immediately, you decide to invest the money in a bank CD that pays 9.00 percent, compounded quarterly, for the next two years. How much money can you expect to earn in this period of time?

Value of investment after 2 years $=

E. Your aunt is planning to invest in a bank CD that will pay 8.0 percent interest semiannually. If she has $10,500 to invest, how much will she have at the end of four years?

Value of investment after 4 years $=

Explanation / Answer

Ans A) Future value = presetn value * (1 + r/2)^(2*n)

14000 = present value * (1.044)^24

presnt value = $4981

Ans B) Future value = loan amount * (1+r)^n

7250 = loan amount * (1.075)^3

loan amount = $5836

Ans c) Future value = amount invested * (1+r)^n

29000 = amount invested * (1.053)^6

amount invested = $21273

ans d) Future value = present value * (1 + r/4)^(4*n)

future value = 2300 * (1 + .09/4)^(4*2)

future value = $2748.11

ans e) Value of investment after 4 years = 10500 * (1.02)^16 = $14414.25

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