Quantitative Problem 1: You deposit $1,800 into an account that pays 3% per year
ID: 2486789 • Letter: Q
Question
Quantitative Problem 1: You deposit $1,800 into an account that pays 3% per year. Your plan is to withdraw this amount at the end of 5 years to use for a down payment on a new car. How much will you be able to withdraw at the end of 5 years? Round your answer to the nearest cent. Do not round intermediate calculations.
Quantitative Problem 2: Today, you invest a lump sum amount in an equity fund that provides an 8% annual return. You would like to have $11,300 in 6 years to help with a down payment for a home. How much do you need to deposit today to reach your $11,300 goal? Round your answer to the nearest cent. Do not round intermediate calculations.
Explanation / Answer
Solution 1.
Amount invested= $1800
Interest Rate is 3% per year
Interest for 1 year= 1800*3/100 = $54
interest for 5 years = 54*5 =$270
Amount to be received at maturity = Principal Amount Invested + Interest for 5 years
= 1800+270
= $2070
Solution 2.
Amount to be invested today to get $11300 at the end of 6th year
Let the amount invested = X
X + X*8/100*6 = 11300
1.48X= 11300
X= $7365
*Assuming interest is not compounded in both the quetions.