Question

Starr Company decides to establish a fund that it will use 1 year from now to...

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 The $7,100 plus earned interest must remain in the account 4 years before it can be withdrawn.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.)

Homework Answers

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

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