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.

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