Question

1. If you deposit $1600 into an account paying 8% compounded monthly, how much will you have in 4 years?

2. if you deposit $1600 in an account paying 8% today and deposit $1600 every year into the account, how much will you have in 4 years?

3. The average price for a new car today is $29000. If the rate of inflation is expected to be 3.5% annually, what will a new car cost in 7 years?

4. You bought a stock 7 years ago for $45. Today, the stock is selling for $79. if you sell today, what rate of return have you earned on the stock?

5. How long would it take for a deposit of $1200 to become $16000 if you can earn 9.5% on your money?

6. A risk- free investment promises to pay you $650 every 6 months for the next 11 years. If you can earn 9.5% on your money, how much would you be willing to pay for the investment?

Answer 1

1.

Amount accumulated after 4 years can be computed with help of below formula-

where,

A = Future amount (ending amount)

P = Initial amount

R = rate of interest

n = no. of compounding

t = No. of years.

Here,

P = $1600

R = 8 %

n = 12 (as monthly compounded)

t = 4 years

A = 1600 * 1.37566612229868

A = 2201.065796

Amount accumulated after 4 years = $2201.07 $ (approx)

Hope it helps!