You need $6,000 in 3 months to pay for your tuition. If your investments earn 5.

Question

You need $6,000 in 3 months to pay for your tuition. If your investments earn 5.00% APR (compounded monthly), how much do you have to invest today such that your investment will grow to just cover your property tax bill? $6,044 O $5,287 $5.926 O $5,807 O $5,183 Question 3 10 pts You've lost a legal settlement and therefore have to pay $6,000 per month (starting next month) to the plaintiff for 360 months. If your investments earn 2.50% APR (Compounded monthly), How much would you have to invest today to have your investment just cover the settlement? $1,518,523 $1,548,893 $1,488,152 O $244,766 $239,967

Explanation / Answer

Since, multiple questions have been posted and each question is independent of another, I have answered the first two.

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Question 1)

The amount to be invested today to pay a property tax bill of $6,000 in three months is determined as below:

Amount to be Invested Today = Amount Needed/(1+APR/12)^Number of Months

Here, Amount Needed = $6,000, APR = 5% and Number of Months = 3

Using these values in the above formula, we get,

Amount to be Invested Today = 6,000/(1+5%/12)^3 = $5,925.62 or $5,926 (which is Option C)

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Question 3)

The present value of an annuity (series of payments) can be calculated with the use of PV (Present Value) function/formula of EXCEL/Financial Calculator. The function/formula for PV is PV(Rate,Nper,PMT,FV) where Rate = Interest Rate, Nper = Period, PMT = Payment and FV = Future Value (if any).

Here, Rate = 2.50%/12, Nper = 360, PMT = $6,000 and FV = 0

Using these values in the above function/formula for PV, we get,

Amount to be Invested Today = PV(2.50%/12,360,6000,0) = $1,518,522.56 or $1,518,523 (which is Option A)

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