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1) Ali needs $7500 for a future project
1)
Ali needs $7500 for a future project. He can invest $6000 now at a an annual rate of 14.5%, compound semiannually. Assuming that no withdrawals are made, how long will it take for him to have enough money for his project?
2)
Pope has life insurance policies on its officers' lives. Annual premiums amount to $5,000. At the end of 2014, cash surrender value of the policies totaled $18,200. Dividends received by Pope from the insurance company amounted to $500 in 2014. The insurance expense recognized by Pope in 2014 was $3,500. What was the amount of cash surrender value of these policies on January 1, 2014? A. $17,200 B. $14,200 C. $16,200 D. $10,200
Expert Solution
1)
Computation of Time using NPER Function in Excel:
=nper(rate,pmt,-pv,fv)/2
Here,
Nper = Number of Periods = ?
Rate = 14.5%/2 = 7.25% compounded semiannually
Pmt = 0
PV = $6,000
FV = $7,500
Substituting the values in formula:
=nper(7.25%,0,-6000,7500)/2
NPER or Number of Periods = 1.59 years
2)
Computation of Amount of Cash Surrender Value of these policies on January 1, 2014:
Amount of Cash Surrender Value = $18,200-($5,000-($500+$3,500)) = $17,200
So, the correct option is A "$17,200".
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