1. Donna would like to attend law school soon. After researching the cost of tui
ID: 2710409 • Letter: 1
Question
1. Donna would like to attend law school soon. After researching the cost of tuition, she determines that she will need to save $60,000 in 4 years. She decides that she will make weekly deposits into a savings account that earns 2 3/4% interest. How much money will Donna need to deposit each week? Answer is $272.96 how do I get that
2. A mutual fund had annual returns of +7%, +3%, -4%, and +6% in each of the last four years. What was the average rate of return over this period? Answer is 2.91% how do I get that?
3. Zoom Technologies issued a $1,000 par value bond with a 5 1/4% coupon rate. Interest payments will be made semiannually. Suppose of these bonds sells for $915.75. What is the current yield? Answer is 5.73%. How do I get that?
Explanation / Answer
1. Formula to calculate amount that is required to be deposited each week:
FV = Pmt / i / c [(1 + i/c)^nxc - 1]
FV = 60,000, Pmt = ?, i = Interest = 2.75%, c = Compounding Frequency = 52, n = Number of Years=4
60,000 = X / 0.0275 / 52 [(1 + 0.0275 / 52)^4x52 - 1]
X = $272.96
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