Question

# 5-1 FUTURE VALUE If you deposit \$10,000 in a bank account that pays 10% interest annually,...

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

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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