1. You expect to receive $3,000 in 3 years (i.e., end of year 3). Then you plan
ID: 2653405 • Letter: 1
Question
1. You expect to receive $3,000 in 3 years (i.e., end of year 3). Then you plan to invest it earning 5% per year. SHOW ALL WORK using TVM buttons on the TI BAII Plus Calculator. What will you have at the end of year 8?
2. You are presented with an investment opportunity to receive $2,000 at the end of year 1; $4,000 at the end of year 2; $3,500 at the end of year 3; and $4,000 at the end of year 4. SHOW all work using the CF register on the TI BAII Plus Calculator.
If you can earn 5% on a similar risk investment, what is the most you should be willing to pay today for this investment?
3. You have the chance to receive $500 at the end of 2 years. If you can earn 5% on similar risk investments, what is the most you should be willing to pay today for this investment (i.e., today's value)? SHOW ALL work using the TVM buttons on the TI BAII Plus Calculator.
Explanation / Answer
Answer:
The amount of $3000 Shall be invested for 5 years ( 8 years – 3 years) at the rate of 5% Per year.
Future value = Present value ( (1+r)^n
r= rate of interest = 5% = 0.05
n = Number of years =5
Hence the Future value shall be = $3000 * (1+0.05)^5
= 3000 * 1.276282
=$3828.85
Hence there shall be $3828.85 at the end of year 8.
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