Question

Show all calculations. You must use the factors from the tables

a. Steve Allen invested $12,000 today in a fund that earns 8% interest. If the interest compounds semiannually, what amount will the investment grow to in 6 years?

Answer $_____________________

b. A machine is purchased by making 6 payments of $8,000 each at the beginning of each year (starting at the time of the purchase). Assuming an annual interest rate of 10%, at what cost should the machine be recorded at?

Answer $_____________________

c. Rick Olsen wishes to save $1,500 a year toward retirement. If he deposits the money at the end of the year, compute how much money he would accumulate at 4% interest after 25 years (interest paid once a year).

Answer $_____________________

d. Fiesta Company is considering an investment that will return a lump sum of $900,000, 6 years from now. What amount should Fiesta pay for this investment to earn an 8% return?

Answer $_____________________

e. Cornell Corporation earns 2% on an investment that pays back $8,000 at the end of each of the next 7 years. What is the amount Cornell invested to earn the 2% rate of return?

Answer $_____________________

f. Connie Chung wishes to start saving for retirement by opening up a traditional IRA. If she deposits $1,000 at the beginning of each year for 25 years, how much will she have accumulated if the IRA earns 9% interest?

Answer $_____________________

g. Natasha Romanoff made an investment of $19,424.50. From this investment, she will receive $2,000 annually at the end of each year for the next 15 years. What rate of interest will Natasha’s investment be earning for her?

Answer _____________________

h. Tony Stark invests $7,793.83 today and will receive a series of $1,300 annual payments at the end of each year. Tony will earn a return of 9% on the investment. How many annual payments of $1,300 will Tony receive?

Answer _____________________

Answer 1

a. Steve Allen invested $12,000 today in a fund that earns 8% interest. If the interest compounds semiannually, what amount will the investment grow to in 6 years?

Answer:

Semi Annual Interest Rate = 8% / 2 = 4% or 0.04

Semi Annual Period to Maturity = 6 * 2 = 12

The amount will the investment grow to in 6 years = Amount Invested today (1 + Semi Annual Interest Rate) 12

= $12,000 (1 + 0.04)12

= $12,000 * 1.601032

= $19,212.38

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