Question

Yani has $12,000 for investment purposes. His bank has offered the following three choices: Choice 1....

Yani has $12,000 for investment purposes. His bank has offered the following three choices: Choice 1. A special savings certificate that will pay $70 each month for 5 years and a lump sum payment at the end of 5 years of $13,000 Choice 2. Buy a share of a racehorse for $12,000 that will be worth $17,500 in 5 years Choice 3. Put the money in a savings account that will have an interest rate of 12% per year compounded monthly Use an annual worth analysis to make a recommendation to Yani.
What is the annual worth of each choice?

Choice 1, Certificate: $_______
Choice 2, Racehorse: $________
Choice 3, Savings Account: $________

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans- Future value of money refers to the equivalent worth of the sum of money in the future based on its underlying rate of interest and time period. The future worth of money increases as the interest rates and time rises.

Choice 1:

The future worth of the savings certificate can be calculated with the following equation.

FV=Anm+PV

Where:

A=monthly annuity

n=number of years

m=periodicity

PV=par value

FV=(70×5×12)+13000

FV=4200+13000

FV=17,200

The future worth of Choice 1 is $17,200

Choice 2:

The future worth of this option in the next 5 years is $17,500

Choice 3:-

Calculate the future value of the savings account in the next five years-

FV=PV×(1+r)n

FV=12000×(1+.12)5

FV=12000×1.7623

FV=21,148.10

The future worth of Choice 3 in the next five years is $21,148.10

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Yani has $12,000 for investment purposes. His bank has offered the following three choices: Choice 1....
Yani has $12,000 for investment purposes. His bank has offered the following three choices: Choice 1. A special savings certificate that will pay $120 each month for 5 years and a lump sum payment at the end of 5 years of $13,000 Choice 2. Buy a share of a racehorse for $12,000 that will be worth $27,000 in 5 years Choice 3. Put the money in a savings account that will have an interest rate of 12% per year compounded...
Use the future worth portfolio technique (problems 6- 65, 66  ) to analyze the following situation. (Principles...
Use the future worth portfolio technique (problems 6- 65, 66  ) to analyze the following situation. (Principles of Engineering Economic Analysis, 6th edition)     An investor has 200,000 dollars to invest.  One choice is a certificate of deposit which earns 10% per year and must be held without withdrawal for 6 years. The certificate of deposit requires the full 200,000.   A passbook savings account is available (passbook means you can add and withdraw at any time) which yields 6% per year.  There are two ventures...
A construction company borrow $30,000 to purchase a truck. The bank has offered the following choice...
A construction company borrow $30,000 to purchase a truck. The bank has offered the following choice of payment plans. If the interest rate is 15%, which plan the company should choose? Use present worth analysis Plan A: $5010 per year for 5 years Plan B: No payment for first 2 years, then $9048 per year for rest of 3 years
The R&M Bank has offered you the choice between two investment accounts: #1 pays interest at...
The R&M Bank has offered you the choice between two investment accounts: #1 pays interest at a rate of 12% compounded semi-annually #2 pays interest at a rate of 11% compounded monthly Which investment account do you prefer and why? a) #2 highest effective rate b) #1 12% is greater than 11% c) #1 highest effective rate d) #2 greater compounding frequency
1. Calculate the future value of an investment worth $2800 that pays 1.5% simple interest rate...
1. Calculate the future value of an investment worth $2800 that pays 1.5% simple interest rate after 4 years. 2. Derek invested $1000. What would that money grow to in 18 months at a 5% annual simple interest rate? 3. If I put $2500 into my saving account and earned $250 of interest at 5% annual simple interest, how long was my money in the bank? 4. Geneva wants to save $12,000 to buy a new car. She just received...
Ben Cunnington is planning for his retirement and has $50,000 to invest as a lump sum...
Ben Cunnington is planning for his retirement and has $50,000 to invest as a lump sum into a retirement investment plan. Ben plans to work for another 35 years before retiring at the age of 65 and, as well as the $50,000 lump sum, he plans to deposit $1,500 into a capital secured share index fund each month of his remaining working life. He estimates that his retirement account will generate an annual return of 7%. Ben plans to retire...
A father is now planning a savings program to put his daughter through college. She is...
A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 5% annually. The college requires total payment at the start of the year. She now has $10,000 in a college savings account...
Problem 5-40 Required annuity payments A father is now planning a savings program to put his...
Problem 5-40 Required annuity payments A father is now planning a savings program to put his daughter through college. She is 13, she plans to enroll at the university in 5 years, and she should graduate in 4 years. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 5% annually. The college requires that this amount be paid at the start of the year....
Problem 5-40 Required annuity payments A father is now planning a savings program to put his...
Problem 5-40 Required annuity payments A father is now planning a savings program to put his daughter through college. She is 13, she plans to enroll at the university in 5 years, and she should graduate in 4 years. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 5% annually. The college requires that this amount be paid at the start of the year....
Problem 5-40 Required annuity payments A father is now planning a savings program to put his...
Problem 5-40 Required annuity payments A father is now planning a savings program to put his daughter through college. She is 13, she plans to enroll at the university in 5 years, and she should graduate in 4 years. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $13,000, but these costs are expected to increase by 5% annually. The college requires that this amount be paid at the start of the year....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT