Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / A) How long would it take an investment to grow five-fold if it were invested at 8 percent compounded quarterly? B)You have an opportunity to make an investment that will pay RM100 at the end of the first year, RM400 at the end of the second year, at the end of third year and at the end of fourth year and RM300 at the end of the fifth year
A) How long would it take an investment to grow five-fold if it were invested at 8 percent compounded quarterly?
B)You have an opportunity to make an investment that will pay RM100 at the end of the first year, RM400 at the end of the second year, at the end of third year and at the end of fourth year and RM300 at the end of the fifth year. Find the present value if the interest rate is 8 percent.
A) To calculate the time taken for an investment to grow five folds, we'll use the following formula
Principal * (1 + Interest rate/No. of quarters)^Time = 5*Principal
Let the principal be RM1,
Therefore, 1 * (1 + 8%/4)^Time = 5*1
(1 + 2%)^Time = 5
1.02 ^ Time = 5
Solving for the time (In quarters), we get time as 81.27 Quarters
= 20 Years and 3.81 months
= 20 years and 115 days
B)
The present value of the project is calculated by discounting the future cash flows with the discount rate to obtain the present value.
Discount rate (K) = 8%
Cash Flow in Year 1 = RM 100
Cash Flow in Year 2 = RM 400
Cash Flow in Year 3 = RM 400
Cash Flow in Year 4 = RM 400
Cash Flow in Year 5 = RM 300
Present Value = CF1 / (1 + K)^1 + CF2 / (1 + K)^2 + CF3 / (1 + K)^3 + CF4 / (1 + K)^4 + CF5 / (1 + K)^5
= 100 / (1 + 8%)^1 + 400 / (1 + 8%)^2 + 400 / (1 + 8%)^3 + 400 / (1 + 8%)^4 + 300 / (1 + 8%)^5
= 100 / (1.08) + 400 / (1.1664) + 400 / (1.2597) + 400 / (1.3605)^4 + 300 / (1.4693)^5
= 92.59 + 342.94 + 317.54 + 294.01 + 204.17
= 1251.25
Thus, the present value of the project is equal to RM 1251.25
