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Homework answers / question archive / 1)To what amount will ?$5,200 invested for 9 years at 10 percent compounded annually accumulate?     Leslie? Mosallam, who recently sold her? Porsche, placed ?$9 comma 000 in a savings account paying annual compound interest of 4 percent

1)To what amount will ?$5,200 invested for 9 years at 10 percent compounded annually accumulate?     Leslie? Mosallam, who recently sold her? Porsche, placed ?$9 comma 000 in a savings account paying annual compound interest of 4 percent

Finance

1)To what amount will ?$5,200 invested for 9 years at 10 percent compounded annually accumulate?

 

 

  1. Leslie? Mosallam, who recently sold her? Porsche, placed ?$9 comma 000 in a savings account paying annual compound interest of 4 percent.

 

a. Calculate the amount of money that will accumulate if Leslie leaves the money in the bank for 3?, 7?, and 17 ?year(s).

After placing ?$9,000 in a savings account paying annual compound interest of 4 percent?, the amount of money that will accumulate if Leslie leaves the money in the bank for 3 ?year(s) is ?

If she leaves the money in the bank for 7 ?years, the amount of money that will accumulate is ??

If she leaves the money in the bank for 17 ?years, the amount of money that will accumulate is ?

b. Suppose Leslie moves her money into an account that pays 6 percent or one that pays 8 percent.  Rework part ?(a?) using 6 percent and 8 percent.

 

If Leslie moves her money into an account that pays 6 percent compounded annually for 3 ?year(s), the amount of money that will accumulate is ?

If Leslie moves her money into an account that pays 6 percent compounded annually for 7 ?years, the amount of money that will accumulate is ?

If Leslie moves her money into an account that pays 6 percent compounded annually for 17 ?years, the amount of money that will accumulate is ?

If Leslie moves her money into an account that pays 8 percent compounded annually for 3 ?year(s), the amount of money that will accumulate is ?

If Leslie moves her money into an account that pays 8 percent compounded annually for 7 ?years, the amount of money that will accumulate is ?

If Leslie moves her money into an account that pays 8 percent compounded annually for 17 ?years, the amount of money that will accumulate is ?

c. What conclusions can you draw about the relationship between interest? rates, time, and future sums from the calculations you just? did?

 

 

  1. You are hoping to buy a house in the future and recently received an inheritance of ?$24,000.  You intend to use your inheritance as a down payment on your house.

a. If you put your inheritance in an account that earns 8 percent interest compounded? annually, how many years will it be before your inheritance grows to ?$33,000??

b. If you let your money grow for 10.5 years at 8 percent?, how much will you? have?

c. How long will it take your money to grow to ?$33,000 if you move it into an account that pays 4 percent compounded? annually? How long will it take your money to grow to ?$33,000 if you move it into an account that pays 11 percent??

How long will it take your money to grow to ?$33,000 if you move it into an account that pays 11 ?percent?

d. What does all this tell you about the relationship among interest? rates, time, and future? sums?

  1. Calculate the amount of money that will be in each of the following accounts at the end of the given deposit? period:
 

 

Account Holder

Amount

Deposited

Annual

Interest Rate

Compounding

Periods Per Year? (M)

Compounding

Periods? (Years)

 

Theodore Logan III

?$

900

 

18

?%

6

 

10

 

Vernell Coles

 

94,000

 

10

 

4

 

2

 

Tina Elliot

 

9,000

 

10

 

12

 

4

 

Wayne Robinson

 

121,000

 

8

 

3

 

5

 

Eunice Chung

 

29,000

 

16

 

1

 

5

 

Kelly Cravens

 

14,000

 

12

 

2

 

3

 

 

a. The amount of money in Theodore Logan? III's account at the end of 10 years will be ?

b. The amount of money in Vernell? Coles' account at the end of 2 ?year(s) will be

c.  The amount of money in Tina? Elliot's account at the end of 4 years will be ??

d. The amount of money in Wayne? Robinson's account at the end of 5 years will be ?

e. The amount of money in Eunice? Chung's account at the end of 5 years will be

f.  The amount of money in Kelly? Cravens' account at the end of 3 years will be ?

5) You just received a bonus of ?$4,000.

a. Calculate the future value of ?$4,000?, given that it will be held in the bank for 7 years and earn an annual interest rate of 6 percent.

b. Recalculate part ?(a?) using a compounding period that is? (1) semiannual and? (2) bimonthly.

c. Recalculate parts ?(a?) and ?(b?) using an annual interest rate of 12 percent.

d. Recalculate part ?(a?) using a time horizon of 14 years at an annual interest rate of 6 percent.

e. What conclusions can you draw when you compare the answers in parts ?(c?) and ?(d?) with the answers in parts ?(a?) and ?(b?)?

A. An increase in the stated interest rate will decrease the future value of a given sum. ? Whereas, an increase in the length of the holding period will increase the future value of a given sum.

B. An increase in the stated interest rate will increase the future value of a given sum. ? Likewise, an increase in the length of the holding period will increase the future value of a given sum.

C. An increase in the stated interest rate will decrease the future value of a given sum. ? Likewise, an increase in the length of the holding period will decrease the future value of a given sum.

D. An increase in the stated interest rate will increase the future value of a given sum. ? Whereas, an increase in the length of the holding period will decrease the future value of a given sum.

6)  If you deposit ?$3,400 today into an account earning an annual rate of return of 7 ?percent, what would your account be worth in 20 years? (assuming no further? deposits)?  In 25 ?years?

a. If you deposit ?$3,400 today into an account earning an annual rate of return of 7 ?percent, what would your account be worth in 20 ?years?  

b. If you deposit ?$3,400 today into an account earning an annual rate of return of 7 ?percent, what would your account be worth in 25 ?years?  

7) Sarah Wiggum would like to make a single investment and have ?$2.3 million at the time of her retirement in 25 years.  She has found a mutual fund that will earn 4 percent annually.  How much will Sarah have to invest? today?  If Sarah earned an annual return of 15 ?percent, how soon could she then? retire?

a. If Sarah can earn 4 percent annually for the next 25 ?years, the amount of money she will have to invest today is

b. If Sarah can earn an annual return of 15 percent?, the number of years until she could retire is

8) How many years will it take for ?$480 to grow to ?$1,007.03 if? it's invested at 6 percent compounded? annually?

The number of years it will take for ?$480 to grow to ?$1 comma 007.03 at 6 percent compounded annually is

9) Ronen Consulting has just realized an accounting error that has resulted in an unfunded liability of ?$395,000 due in 27 years.  In other? words, they will need ?$395,000 in 27 years.  Toni? Flanders, the? company's CEO, is scrambling to discount the liability to the present to assist in valuing the? firm's stock.  If the appropriate discount rate is 9 ?percent, what is the present value of the? liability?

If the appropriate discount rate is 9 ?percent, the present value of the ?$395,000 liability due in 27 years is ?

10) Lance Murdock purchased a wooden statue of a Conquistador for $ 8,000 to put in his home office 9 years ago.  Lance has recently? married, and his home office is being converted into a sewing room.  His new? wife, who has far better taste than? Lance, thinks the Conquistador is hideous and must go immediately.  Lance decided to sell it on? e-Bay and only received ?$5,500 for? it, and so he took a loss on the investment.  What was his rate of? return, that? is, the value of i??

What was Lance? Murdock's rate of? return, that? is, the value of i??  Enter a negative percentage for a loss. 

11) You are offered ?$100,000 today or ?$380,000 in 10 years. Assuming that you can earn 14 percent on your? money, which should you? choose?

If you are offered ?$380,000 in 10 years and you can earn 14 percent on your? money, what is the present value of ?$380,000??

Which offer should you? choose?

A. Choose ?$380,000 in 10 years because its present value is higher.

B. Choose ?$100,000 today because its present value is higher.

12) Your grandmother asks for your help in choosing a certificate of deposit? (CD) from a bank with a? one-year maturity and a fixed interest rate. The first certificate of? deposit, CD? #1, pays 4.95 percent APR compounded monthly?, while the second certificate of? deposit, CD? #2, pays 5.00 percent APR compounded quarterly.  What is the effective annual rate? (the EAR) of each? CD, and which CD do you recommend to your? grandmother?

If the first certificate of? deposit, CD? #1, pays 4.95 percent APR compounded monthly?, the EAR for the deposit is

If the second certificate of? deposit, CD? #2, pays 5.00 percent APR compounded quarterly?, the EAR for the deposit is

Based on the findings? above, which CD do you recommend to your? grandmother?  ?(Select the best choice? below.)

  1. CD # 2 that pays 5.00 % compounded quarterly
  2. CD # 1 that pays 4.95 % compounded monthly

 

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