Question

1. Complete the following questions on your previous unit 1.5 (a-c)

a) What is the value today of a money machine that will pay $3,237.00 per year for 28.00 years? Assume the first payment is made today and that there are 28.0 total payments. The interest rate is 14.00%.

Answer format: Currency: Round to: 2 decimal places.

b) Derek will deposit $4,989.00 per year for 15.00 years into an account that earns 14.00%. The first deposit is made next year. How much will be in the account 15.0 years from today?

Answer format: Currency: Round to: 2 decimal places.

c) Derek will deposit $3,946.00 per year for 20.00 years into an account that earns 4.00%, The first deposit is made next year. How much will be in the account 37.00 years from today?

Answer format: Currency: Round to: 2 decimal places.

Answer 1

Answer to Question A:

Annual Payment = $3,237
Number of Payments = 28
Interest Rate = 14.00%

Present Value = $3,237 + $3,237/1.14 + … + $3,237/1.14^26 + $3,237/1.14^27
Present Value = $3,237 * 1.14 * (1 - (1/1.14)^28) / 0.14
Present Value = $3,237 * 7.935155
Present Value = $25,686.10

Answer to Question B:

Annual Deposit = $4,989
Number of Deposits = 15
Interest Rate = 14.00%

Future Value = $4,989*1.14^14 + $4,989*1.14^13 + … + $4,989*1.14 + $4,989
Future Value = $4,989 * (1.14^15 - 1) / 0.14
Future Value = $4,989 * 43.842414
Future Value = $218,729.80

Answer to Question C:

Annual Deposit = $3,946
Number of Deposits = 20
Interest Rate = 4.00%

Future Value = $3,946*1.04^36 + $3,946*1.04^35 + … + $3,946*1.04^18 + $3,946*1.04^17
Future Value = $3,946 * 1.04^17 * (1.04^20 - 1) / 0.04
Future Value = $3,946 * 58.004734
Future Value = $228,886.68