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Chapter 6: Q2E (page 303)

Alan Jackson invests $20,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Alan withdraws the accumulated amount of money. Instructions (a) Compute the amount Alan would withdraw assuming the investment earns simple interest. (b) Compute the amount Alan would withdraw assuming the investment earns interest compounded annually. (c) Compute the amount Alan would withdraw assuming the investment earns interest compounded semiannually

Short Answer

Expert verified

The amount at the withdrawal using simple interest will be $32,800, Compounded annually will be $37,018, and compounded semi-annually will be $37,459.

Step by step solution

01

Simple Interest

Amountatwithdrawal=Amount+SimpleInterestRate=20,000+20,000脳8%脳8=$32,800

02

Compounded Annually

Amountatwithdrawal=Amount脳Futurevaluefactor=20,000脳1.85093=$37,018

03

Compounded Semi-annually

Amountatwithdrawal=Amount脳Futurevaluefactor=20,000脳1.87298=$37,459

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Most popular questions from this chapter

Clarence Weatherspoon, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $20,000 per year on June 30, beginning in 2021 and continuing through 2024. To develop this fund, Clarence intends to make equal contributions on June 30 of each of the years 2017鈥�2020. Instructions

(a) How much must the balance of the fund equal on June 30, 2020, in order for Clarence to satisfy his objective?

(b) What are each of Clarence鈥檚 contributions to the fund?

The Procter & Gamble Company (P&G)

The financial statements of P&G are presented in Appendix B. The company鈥檚 complete annual report, including the notes to the financial statements, is available online.

Instructions (a) Examining each item in P&G鈥檚 balance sheet, identify those items that require present value, discounting, or interest computations in establishing the amount reported. (The accompanying notes are an additional source for this information.)

(b) (1) What interest rates are disclosed by P&G as being used to compute interest and present values?

(2) Why are there so many different interest rates applied to P&G鈥檚 financial statement elements (assets, liabilities, revenues, and expenses)?

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