Question

A problem is listed below. Identify its type.

1a. Beginning in 4 years, a new Booster Club at a certain high school would like to award an outstanding senior on the varsity soccer team with a check of $3,600 towards the student's college tuition. Since there is a boy and girl team, they wish to award one senior boy and one senior girl the same amount of money. Thus, the club will need $7,200 at the end of 4 years. How much must the booster club invest each semiannual period in an account that pays 5% per year compounded semiannually to have the desired funds in 4 years?

a) Present Value of an Annuity

b) Future Value with compound interest

c) Sinking Fund

d) Future Value of an Annuity

e) Amortization

f) None of the above.

1b.

A problem is listed below. Identify its type.

Mr. Garcia is planning for retirement. He deposits $750 each month into a retirement account. The account pays 8% per year compounded monthly. How much will he have in 18 years when he retires?

a) Present Value of an Annuity

b) Sinking Fund

c) Present Value

d) Amortization

e) Future Value of an Annuity

f) None of the above.

1c.

Mrs. Patel owns a jewelry store. She anticipates that she'll need a new jewelry cleaner in 2 years. She believes the jewelry cleaner will cost her $600. How much should she put away in an account today that pays 4% per year compounded monthly, so that she can pay cash for the cleaner in 2 years?

a) Effective Rate

b) Present Value with compound interest

c) Future Value with compound interest

d) Simple Interest

e) Future Value with simple interest

f) None of the above.

Answer 1

1.a: Answer: Sinking Fund.

A sinking fund is a fund established by an economic entity by way of periodic investment over a period of time to fund a future expense. So, Booster club can use this sinking fund method to finance its future expenses of award an outstanding senior on the varsity soccer team.

1b. Answer: Future Value of an Annuity

The future value of an annuity is the end amount of recurring payments at regular periodic interval at a particular rate of interest.

1c. Answer: Present Value with compound interest.