3. Rick deposited $2,750 into an account 8 years ago for an emergency fund. Toda

Question

3. Rick deposited $2,750 into an account 8 years ago for an emergency fund. Today, that account is worth $4,220. What annual rate of return did Rick earn on this account assuming no other deposits and no withdrawals?

4. You are comparing two annuities that offer regular payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities?

a These annuities have equal present values but unequal future values.

b These two annuities have both equal present and equal future values.

c Annuity B is an annuity due.

d Annuity A has a smaller future value than annuity B.

e Annuity B has a smaller present value than annuity A.

Explanation / Answer

Question - 3

Let ....... "r" is the annual rate of return.

2750 ( 1+r)8 = 4220

(1 + r )8 = 4220 / 2750 = 1.53454545

1 + r = 8th root ( 1.53454545) = 1.05499

r = 1.05499 - 1 = 0.05499 or ........ 0.055 or =  5.50%

Question - 4

e Annuity B has a smaller present value than annuity A.

Because of one month delay in receipt of first payment with annuity - B.

Kindly rate my answer ....... all the best.

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