Please show your work and write solutions in details, including formulas and how
ID: 2649933 • Letter: P
Question
Please show your work and write solutions in details, including formulas and how you plug numbers, given in each question, into these formulas. Please write short verbal conclusion at the end summarizing your answer in words.
a) How long will it take to double your money with an interest rate of 10 percent? 20 percent? 40 percent?
b) What about tenfold increase in your money with a growth rate of 50 percent?
c) On the advice of your broker ten years ago, you invested in a $6 stock that is now selling for $30. At what rate has your capital grown?
d) Your father is about to retire. His firm has given him the option of retiring with a lump sum of $50,000 or an annuity of $8,000 for ten years. Which is worth more now, if the discount rate is (1) 6%, (2) 18%?
e) You are offered a $15,000 life insurance policy requiring thirty annual payments of $195 each. What is the compound value of the payments that you will have made after the policy is paid up, assuming that the discount rate is 10 percent?
Explanation / Answer
a) In order to calculate how long does it take an investment to double, we can use Rule of 72. It goes as:Divide 72 by the rate of interest the answer is the number of years it would take for an investment to get doubled.
@10% calulating by Rule of 72 the number of years taken to double the investment would be = 72/10 = 7.2 years
@20% calulating by Rule of 72 the number of years taken to double the investment would be = 72/20 = 3.6 years
@40% calulating by Rule of 72 the number of years taken to double the investment would be = 72/40 = 1.8 years
b) Let us assume presently you have $100, tenfold increase = 100 * 10 = 1000. So future value = 100+1000 = 1100
Now, PV = 100, FV = 1100, rate = 50%, n=?
FVN = PV