1. Flower Company is considering an investment which will return a lump sum of $
ID: 2498851 • Letter: 1
Question
1. Flower Company is considering an investment which will return a lump sum of $2,500,000 six years from now. What amount should Flower Company pay for this investment to earn an 11% return? (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Amount Pay for Investment $
2. Bill and Ellen Sweatt plan to invest $2,500 a year in an educational IRA for their granddaughter, Sloane Martin. They will make these deposits on January 2nd of each year. Bill and Ellen feel they can safely earn 8%. How much will be in this account on December 31 of the 18th year? (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 2 decimal places, e.g. 52.75.)
Amount on December 31 $
3. Pleasant Company has decided to begin accumulating a fund for plant expansion. The company deposited $80,000 in a fund on January 2, 2013. Pleasant will also deposit $40,000 annually at the end of each year, starting in 2013. The fund pays interest at 4% compounded annually.
What is the balance of the fund at the end of 2017 (after the 2017 deposit)? (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 2 decimal places, e.g. 52.75.)
Fund Balance $
Explanation / Answer
1)
Amount Pay for Investment = lump sum Amount in 6 year*PVIF(11%,6)
Amount Pay for Investment = 2500000*0.53464
Amount Pay for Investment = $ 1,336,600
2)
Amount on December 31 = Annual Deposit*FVIFA(8%,18)
Amount on December 31 = 2500*37.45024
Amount on December 31 = $ 93,625.60
3)
Fund Balance = Initial Deposit*FVIF(4%,5) + Annual Deposit*FVIFA(4%,5)
Fund Balance = 80000*1.21665 + 40000*5.41632
Fund Balance = $ 313,984.80
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