Suppose 5,000€ are deposited in an account that earns 5% interest compounded sem

Question

Suppose 5,000€ are deposited in an account that earns 5% interest compounded semiannually. You retire 20 per year. How much money will there be in the account after 25 years? (ANS: 16,222.746) 1. 2. If you have $20,000, how much money you will have in 30 years if you earn: a. 2% annually? (ANS: $36,227.23) b, 2% per quarter compounded monthly? (ANS: $218,714.59) c, 2% compound monthly? (ANS: S 36,424.18) 3. and $500 per month You receive $10,000 every five years, $2,000 every two years, S1,000 every year, for the next 100 years. Find the Present worth for this cash flow if the interest rate is 24%. You must clearly show the factors used to solve the problem. (ANS: $40,707.17) How much money would you have after 30 years if you invest $250 every month for 30 y 6% interest com pounded quarterly? Show all your work. (S249704, 36) 4. ears usinga A company with a MARR of 15% is considering investing in a 1 million dollar project that would have a net benefit of $10,000 in the first year, which increases by 3% per year for 20 years. In year 10 you will have to invest an additional $50,000 for a major overhaul. After 20 years the investment has a salvage value of $20,000. Is this investment economically feasible for the company? 5. a. Solve the problem using your calculator (i.e, the exact formulas). (ANS: $202,231.62) b. Solve the problem using the NPV formula in Excel.

Explanation / Answer

1.

Initial deposit = 5000€

Interest rate = 5% (compounding semiannually)

Effective annual interest rate R = (1+5%/2)^2 -1 = 5.0625%

Time = 25 years

Every year, 20€ is retired (withdrawn)

Future value = Future value of the initial deposit – Future value of the annuity of 20€ withdrawal

Future value = 5000*(1+5.0625%)^25 – 20*((1+5.0625%)^25 - 1)/.050625

Future value = 16222.74€

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