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 The \$7,100 plus earned interest must remain in the account 4 years before it can be withdrawn.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

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