Please use the directions in the first picture to answer the following questions
ID: 2731207 • Letter: P
Question
Please use the directions in the first picture to answer the following questions shown in the second picture Directions: Use time value of money (TVM)techniques to solve the following problems. In order to help with your understanding of these problems, you must show your calculator problem set up (PV, FV, I/Y, N, PMT) and identify for which variable you are solving to receive credit consideration. For example: Starting with $10,000 how much will you have in 10 years if you earn 15 percent on your money? If you earn 8 percent how much will you have? To establish a good habit, always think about entering the period rate (i/m) and number of compounding periods (n m for Land N, This way when you have compounding that is not ANNUALLY you have accounted for the difference. Remember m the number of compounding intervals per year, so annual compounding m 1. PV -10,000 N n*m 10 1-10 m 15/ PMT 0 FV CPT $40,455.58Explanation / Answer
16. The $5000 investment will grow to a future value calculated as follows
= FV10 = 5000×(1+0.09)^10 = $11,836.82
Lets assume compounded interest rate over the 10 years
The total interest earned is $6,836.82. The interest earned on the original investment is $450 per years for 10 years, or $4,500. The interest earned on the interest is the difference $2,336.82 [= $6836.82 $4500].
17. PV = FV/(1+i)^N
PV = 700/(1+0.08)^(7-3)
= 700/1.360489
= 514.52
18. Using the footnote formula
we can calculate this as follows
N = ln(fv/pv)/ln(1+i)
N = ln(5000000/2000000)/ln(1.07)
N = 13.54 years
N = 13 years, 6.5 months
19. Calculate the future values of 2 investments seperatly as follows
FVAge 60 = PVAge 30 × (1 + i)^Years until age 60
FVAge 60 = 1000 × (1.09)^30
= 1,000 × 13.267678
= 13,267.68
FVAge 60 = PVAge 40 × (1 + i)^Years until age 60
FVAge 60 = 1000 × (1.12)^20
= 1,000 × 9.64629
= 9,646.29
So first investment is better