Question

Jose has $7000 to invest for a 3 ?-year period. He is looking at four different investment choices. What will be the value of his investment at the end of 3 years for each of the following potential? investments?

a) Bank CD @4%

FV = $7000 x (1 + 0.04)³ = $7,874.05

b) Bond fund @7.5%

FV = $7000 x (1 + 0.075)³ = $8,696.08

c) Mutual Fund @14%

FV = $7000 x (1 + 0.14)³ = $10,370.81

d) New Venture Stock @24%

FV = $7000 x (1 + 0.24)³ = $13,346.37

- What will be the value of? Jose's bank CD investment that offers an annual rate of return of 4% for 3 years? nothing??(Round to the nearest? cent.)

Answer 1

(a) Bank CD

Future Value = $7,000 x [ FVF 4%, 3 Years ]

= $7,000 x (1.04)3

= $7,000 x 1.124864

= $7,874.05

(b) Bond fund

Future Value = $7,000 x [ FVF 7.5%, 3 Years ]

= $7,000 x (1.075)3

= $7,000 x 1.242297

= $8,696.08

(c) Mutual Fund

Future Value = $7,000 x [ FVF 14%, 3 Years ]

= $7,000 x (1.14)3

= $7,000 x 1.481544

= $10,370.81

(d) New Venture Stock

Future Value = $7,000 x [ FVF 24%, 3 Years ]

= $7,000 x (1.24)3

= $7,000 x 1.906624

= $13,346.37

Value of? Jose's bank CD investment at 4% for 3 years

= $7,000 x (1.04)3

= $7,000 x 1.124864

= $7,874.05