Question

5-1

FUTURE VALUE If you deposit $10,000 in a bank account that pays 10% interest annually, how much will be in your account after 5 years?

5-2

PRESENT VALUE What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually?

5-3

FINDING THE REQUIRED INTEREST RATE Your parents will retire in 18 years. They currently have $250,000, and they think they will need $1,000,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don’t save any additional funds?

5-4

TIME FOR A LUMP SUM TO DOUBLE If you deposit money today in an account that pays 6.5% annual interest, how long will it take to double your money?

5-5

TIME TO REACH A FINANCIAL GOAL   You have $42,180.53 in a brokerage account, and you plan to deposit an additional $5,000 at the end of every future year until your account totals $250,000. You expect to earn 12% annually on the account. How many years will it take to reach your goal?

5-6

FUTURE VALUE: ANNUITY VERSUS ANNUITY DUE What’s the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this was an annuity due, what would its fu- ture value be?

5-14

Answer 1

Solution:

5-1

We need to calculate the future value of $10,000 deposit at 10% after 5 years.

Future Value = Deposit Amount x (1 + Rate of Interest)^{Number of times interest payable}

Rate of Interest = 10% or 0.10

Number of times interest payable = 5

Future Value = $10,000 (1 + 0.10)⁵

= 10,000 x 1.61051

= $16,105.10

5-2

Present Value = Future Value x 1/(1+Rate of Interest)^{Number of Years}

= $5,000 x 1 / (1+0.07)²⁰

= $5,000 x 0.25842

= $1,292.10

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts.