Question

Financial question:

1.a) The Chambers would like to accumulate $500,000 for a down payment on a new home. If they are able to save $1000 at the end each month and these funds earn 20% per year, how long will it take for the Browns to accumulate the needed $500,000?

b) Cassandra invests $9,000 today with the hope that in 8 years her investment will be worth $41,500. The investment will compound semiannually. At the end of 8 years, what will be Hanna’s annual rate of return?

Answer 1

Ans 1a) 11.26 years

P =	Periodic payments
r =	rate of interest
n =	no of years
Future Value of Annuity =	P ( (1 + r)^n - 1 ) / r
500000 =	1000* ((1 + 20%/12)^n - 1) / (20%/12)
500000 =	515* ((1 + 10.3%/12)^n - 1) / 0.016666667
n =	11.26 years

Ans 1b) 21.05%

FV =	Future Value
PV =	Present Value
r =	rate of interest
n=	no of period
FV/ PV =	(1 + r )^n
41500 / 9000 =	(1 + r%)^8
4.61111111111111 =	(1 + r%)^8
r =	21.05%