Patrick wants to encourage students to study accounting so he sets up a scholars
ID: 2575895 • Letter: P
Question
Patrick wants to encourage students to study accounting so he sets up a scholarship to pay all his accounting students $5,000 upon successful completion of managerial accounting. However, the money is not payable to students until they obtain a Master in Accounting from an accredited university. After completing managerial accounting, it takes Betty 5 years to obtain a Master in Accounting. How much will Patrick owe her if the investment return is 10% annually?
A) Calculate the amount by using simple multiplication.
B) Calculate using the future value formula FV = PV (1+i)n C) Calculate using the TVM table.
Explanation / Answer
Ans: 1) Amount to be paid after 5 Years = $ 5000
Let Intial Investment be $ x
therefore , => 5000 = x + x * 10% * 5 Years
=> x = $3334 ( Rounded off)
Ans B) Amount to be invested = $ 5000xPVIF(10%,5)
= $ 3105