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Chapter 6: Question 1BE (page 302)

Chris Spear invested $15,000 today in a fund that earns 8% compounded annually. To what amount will the investment grow in 3 years? To what amount would the investment grow in 3 years if the fund earns 8% annual interest compounded semiannually?

Short Answer

Expert verified

The investment will grow to $18,896 in 3 years, and if the investment earns 8% interest compounded semi-annually, the investment will grow to $18,980

Step by step solution

01

Calculation of investment growth in 3 years

FV=PV(FVFn,i)=15,000脳(1.25971)=$18,896

02

Calculation of investment growth in 3 years if the fund earns 8% interest compounded semi-annually

FV=PV(FVFn,i)=15,000脳(1.26532)=18,980

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Most popular questions from this chapter

Question:In a book named Treasure, the reader has to figure out where a 2.2 pound, 24 kt gold horse has been buried. If the horse is found, a prize of \(25,000 a year for 20 years is provided. The actual cost to the publisher to purchase an annuity to pay for the prize is \)245,000. What interest rate (to the nearest percent) was used to determine the amount of the annuity? (Assume end-of-year payments.)

Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of \(2,600,000, or it can make annual payments of \)300,000 for 15 years, each payment due on the last day of the year. Instructions Which method of payment do you recommend, assuming an expected effective interest rate of 8% during the future period?

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)?

Henry Quincy wants to withdraw $30,000 each year for 10 years from a fund that earns 8% interest. How much must he invest today if the first withdrawal is at year-end? How much must he invest today if the first withdrawal takes place immediately?

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