Question

4) Determine the value at the end of four years
of

a $5,000 investment today that pays a nominal annual interest rate
of 15%, compounded:

a)

Annually

b)

Semiannually

c)

Quarterly

d)

Monthly

5. You are considering buying a painting by a
local

artist for $1,200. You believe that this artist is just

about to be discovered, and think that five years from now the
painting will be worth $5,000. If you are

correct, what average annual return would you earn on this
investment over this period?

Answer #1

**Solution:-**

a). We use the formula,

A=P (1+r/2) ^2n

where

A=future value

P=present value

r=rate of interest

n=time period.

A=$5000(1+0.15/2) ^ (2*4)

=$5000 * 1.78347783

=**$8917.39 (Approx.)**

**b).**We use the formula

A=P (1+r/4) ^ 4n

A=$5000(1+0.15/4) ^ (4*4)

=$5000*1.80222

=**$9011.14(Approx.)**

**C).** We use the formula:

A=P(1+r/1200)^12n

A=$5000(1+0.15/12) ^ (12*4)

=$5000*1.815355

=**$9076.8 (Approx.).**

**5).** FV=PV*(1+i) ^n

FV=future value=5000

PV=present value=1200

i=average annual return =?

n=5

5000=1200*(1+i) ^5

1+I = (5000/1200)^(1/5)

i=1.330325-1

i=0.330325

i=33.0325%

The average annual return is 33.03%

4) Determine the value at the end of four years of
a $5,000 investment today that pays a nominal annual
interest rate of 15%, compounded:
a)
Annually
b)
Semiannually
c)
Quarterly
d)
Monthly
5. You are considering buying a painting by a
local
artist for $1,200. You believe that this artist is just
about to be discovered, and think that five years from now the
painting will be worth $5,000. If you are
correct, what average annual return would you...

Calculate the future value in five years of $5,000
received today if your investments pay
6 percent compounded annually
8 percent compounded annually
4 percent compounded annually
4 percent compounded semiannually
4 percent compounded quarterly

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6 percent compounded annually
8 percent compounded annually
10 percent compounded annually
10 percent compounded semiannually
10 percent compounded quarterly
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$
b.
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a.
6 percent compounded annually
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b.
8 percent compounded annually
c.
10 percent compounded annually
d.
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e.
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