Question 1: (10 Points)
Calculate the future value of an investment of $1,500, after 6 months, earning 7% APR, compounded monthly, by compounding manually.
Future Value, F = P x (1 + r)n
F = $ 1,500 x (1 + 0.07)6
F = $ 2,280.16
Question 2: (10 Points)
Find the future value of a $140,000 Certificate of Deposit that pays compounded interest every six months at the rate of 4.5% per year. The CD has a term of 5 years.
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Calculate the FV (Future Value) using the “Future Value or Compound Amount of $1.00” table in your textbook.
Future Value, FV= $ 1 (1 + i)n
F = $ 140,000 (1 + 0.00375)60
F = $ 140,315.35
Calculate the FV (Future Value) using the formula: FV = P(1 + R)N
Future Value, F = P x (1 + r)n
F = $ 140,000 x (1 + 0. 045)10
F = $ 140,631.40
How much interest was earned on the investment?
Interest earned =$ 315.35 in option [a] and 631.40 in option [b]
Question 3: (10 Points)
You inherit $240,000 and decide to invest it for 28 days compounded daily at 6.5% annual interest. After the 28 days, you are going to invest your new found money in a startup business.
How much interest is earned on this investment?
Future Value, F = P x (1 + r)n
F = $ 240,000 x (1 + 0.065)28
F = $ 244,406.55
Interested earned = $ 4,406.55
How much money will you have to invest in the startup after the 28 days?
F = $ 244,406.55
Question 4: (10 Points)
How much money must be invested into an account paying 6.5% annually, compounded annually, to have $550,000 in 25 years when I retire?
Calculate the PV (Present Value) using the “Present Value of $1.00” table in your textbook.
Future Value, F = P/ (1 + r)n
PV = $ 550,000 / (1 + 0.065)300
PV = $ 541,064.62
Calculate the PV (Present Value) using the formula: PV = FV / (1 +R)N
Future Value, F = P/ (1 + r)n
PV = $ 550,000 / (1 + 0.065)28
PV = $ 541,137.58
How much interest did you earn over the life of the investment?
Interest earned = $ 8935.38 in option [a] and $ 8862.42 in option [b]
