Question

Which investment returns a greater future value at time 10; A or B

INVESTMENT A

time	return	investment
0		$1,000.00
1	3%
2	3%
3	3%
4	3%
5	3%
6	3%
7	3%
8	3%
9	3%
10	3%

INVESTMENT B

time	return	investment
0		$1,000.00
1	-1%
2	2%
3	-1%
4	2%
5	-1%
6	2%
7	-1%
8	6%
9	6%
10	6%

Answer 1

INVESTMENT-A:
Time	Return	Investment	Working	Future Value
0		1,000.00
1	3%		1000*1.03	1,030.00
2	3%		1030*1.03	1,060.90
3	3%		1060.90*1.03	1,092.73
4	3%		1092.73*1.03	1,125.51
5	3%		1125.51*1.03	1,159.27
6	3%		1159.27*1.03	1,194.05
7	3%		1194.05*1.03	1,229.87
8	3%		1229.87*1.03	1,266.77
9	3%		1266.77*1.03	1,304.77
10	3%		1304.77*10.3	1,343.92

Future Value of Investment-A at time = 10 = 1000*(1.03^10)

= 1000*1.343916

= $1343.92

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.

INVESTMENT-B:
Time	Return	Investment	Working	Future Value
0		1,000.00
1	-1%		1000*0.99	990.00
2	2%		1030*1.03	1,009.80
3	-1%		1060.90*1.03	999.70
4	2%		1092.73*1.03	1,019.70
5	-1%		1125.51*1.03	1,009.50
6	2%		1159.27*1.03	1,029.69
7	-1%		1194.05*1.03	1,019.39
8	6%		1229.87*1.03	1,080.56
9	6%		1266.77*1.03	1,145.39
10	6%		1304.77*10.3	1,214.11

Future Value of Investment-B at time = 10 = 1000*(0.99*1.02*0.99*1.02*0.99*1.02*0.99*1.06*1.06*1.06)

= 1000*1.214112

= $1214.11

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.

Answer:

Investment-A returns a greater future value at time 10 ( i.e. $1,343.92 as compared to $1,214.11)