(Related to Checkpoint 5.2) (Future value) Leslie Mosallam, who recently sold he
ID: 2819793 • Letter: #
Question
(Related to Checkpoint 5.2) (Future value) Leslie Mosallam, who recently sold her Porsche, placed $9,800 in a savings account paying annual compound interest of 6 percent. a. Calculate the amount of money that will accumulate if Leslie leaves the money in the bank for 3, 7, and 17 year(s) b. Suppose Leslie moves her money into an account that pays 8 percent or one that pays 10 percent. Rework part (a) using 8 percent and 10 percent. c. What conclusions can you draw about the relationship between interest rates, time, and future sums from the calculations you just did?Explanation / Answer
1 a If money is kept for 3 yrs FV = PV*(1+R)^N FV = 9800*(1.06^3) FV 11671.96 If money is kept for 7 yrs FV = PV*(1+R)^N FV = 9800*(1.06^7) 14735.58 If money is kept for 17 yrs FV = PV*(1+R)^N FV = 9800*(1.06^17) 26389.17 b If interest is 8% If money is kept for 3 yrs FV = PV*(1+R)^N FV = 9800*(1.08^3) 12345.18 If money is kept for 7 yrs FV = PV*(1+R)^N FV = 9800*(1.08^7) 16795.48 If money is kept for 17 yrs FV = PV*(1+R)^N FV = 9800*(1.08^17) 36260.18 If interest is 10% If money is kept for 3 yrs FV = PV*(1+R)^N FV = 9800*(1.10^3) 13043.8 If money is kept for 7 yrs FV = PV*(1+R)^N FV = 9800*(1.10^7) 19097.43 If money is kept for 17 yrs FV = PV*(1+R)^N FV = 9800*(1.10^17) 49533.81 c With the increase in interest rates and time period the value of investment increases 2 PV = $480 FV = $1940.13 n = 11 YRS Using rate function in excel we can calculate the no of yrs 13.54% RATE(11,,480,-1940.13) 3 Using PV concept we can find the value PV = FV*(1/1+R^N) PV = $375000*(1/(1.06^25) PV = $ 87374.49 Present value of liability due is $ 87374.49 4 a Using rate function in excel we get PV = $1000 FV = $20000 Yrs = 40 7.78% RATE(40,,1000,-20000) b Using rate function in excel we get PV = $1000 FV = $3200 Yrs = 10 12.33% RATE(10,,1000,-3200) c Using rate function in excel we get PV = $1000 FV = $3200 Yrs = 30 3.95% RATE(30,,1000,-3200)
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