FINANCIAL ACCOUNTING II Effective january 2, 2014, johan and Elisa Raga must cal

Question

FINANCIAL ACCOUNTING II

Effective january 2, 2014, johan and Elisa Raga must calculate the amounts arising from the following three alternatives for establishing a fund to be avialble for their daughter's estimated college expenses on december 31, 2024:

1) A single sum of $100,000 to be deposited on january 2, 2014, at a guaranteed annual rate of return of 8%.

2) A sum of $15,000 to be deposited every january 2nd , beginning on january 2, 2014, at an expected annual rate of 6%.

3) A sum of ______________ to be deposited every december 31st beginning on december 31, 2014, that will accumulate to a total of $235,000 on december 31, 2024 , at an expected annual rate of 7%.

Using the future-value and present-value tables, prepare a shedule that Mr. and Mrs. Raga would provide to the National Bank, in order to borrow the money they would need to fund whatever alternative they choose.

Explanation / Answer

1) A single sum of $100,000 to be deposited on january 2, 2014, at a guaranteed annual rate of return of 8%, for 11 ( total completed years)

So Final Amount on December 31, 2024 using future value tables, Future value interest factors comes equals to 2.3316

so the amount will become = 100000 * 2.3316 = 2,33,160

(2) A sum of $15,000 to be deposited every january 2nd , beginning on january 2, 2014, at an expected annual rate of 6%, for next 11 years

so Final amount on 2024 = 15000 * 14.972 = $224,580

3) A sum of ______________ to be deposited every december 31st beginning on december 31, 2014, that will accumulate to a total of $235,000 on december 31, 2024 , at an expected annual rate of 7%.

Here the number of years are 10,By using Future table, the future value interest factors comes out = 13.816 ( Please see in the column 7% and row 10 years for annualised one year compound values)

so Lets say the amount to be deposited every year = X

so X * 13.816 = 2,35,000

X = $17009 or $ 17000

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