Question

Starr Company decides to establish a fund that it will use 1 year from now to replace an aging production facility. The company will make a $94,000 initial contribution to the fund and plans to make quarterly contributions of $50,000 beginning in three months. The fund earns 4%, compounded quarterly. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your "Table Factor" to 4 decimal places and final answer to the nearest whole dollar.)

What will be the value of the fund 1 year from now?

Mark Welsch deposits $7,100 in an account that earns interest at an annual rate of 8%, compounded quarterly. The $7,100 plus earned interest must remain in the account 4 years before it can be withdrawn. How much money will be in the account at the end of 4 years? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.)

Answer 1

Solution 1:

Computation of Value of fund one year from now
Quarterly Period	Beginning Balance	Deposit	Interest earned (Beginning balance * 1%)	Ending balance
0	$0	$94,000	$0	$94,000
1	$94,000	$50,000	$940	$144,940
2	$144,940	$50,000	$1,449	$196,389
3	$196,389	$50,000	$1,964	$248,353
4	$248,353	$50,000	$2,484	$300,837

Therefore value of the fund 1 year from now = $300,837

Solution 2:

Deposit amount = $7,100

Interest rate = 8% annual, 2% quarterly

Periods = 4 years or 16 semiannual periods

Total money in account at the end of 4 years = $7,100 * (1+0.02) ^ 16

= $7,100 * 1.3728 = $9,747