2 a. Ms. Stormy anticipates receiving $50,000 at the end of five years from her

Question

2 a.

Ms. Stormy anticipates receiving $50,000 at the end of five years from her bank account. If the rate of interest is 8 percent, compounded annually, how much money Stormy must have put aside in the bank account today?

$46,296.63

$54,000

$73,466.40

$34,029.19

V.None of the options specified here

b. Edward Hill needs $25,000 at the end of 5 years. He currently has $5,000 to invest. At what rate should he invest his money?

c. Ryan needs $16,000 to buy a new car. If he has $2,000 to invest at 20%, compounded annually, how long will he have to wait to buy the car?

d. At what rate should you invest your money today so that your investment gets tripled in 8 years?

e. At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?

f.

At 8 percent compounded annually, how long will it take $750 to become $1500?

6.5 years

48 months

9 years

12 years

None of the options specified here

I.

$46,296.63

II.

$54,000

III.

$73,466.40

IV.

$34,029.19

V.None of the options specified here

b. Edward Hill needs $25,000 at the end of 5 years. He currently has $5,000 to invest. At what rate should he invest his money?

c. Ryan needs $16,000 to buy a new car. If he has $2,000 to invest at 20%, compounded annually, how long will he have to wait to buy the car?

d. At what rate should you invest your money today so that your investment gets tripled in 8 years?

e. At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?

f.

At 8 percent compounded annually, how long will it take $750 to become $1500?

I.

6.5 years

II.

48 months

III.

9 years

IV.

12 years

V.

None of the options specified here

Explanation / Answer

2a) Future Value = Present Value*((1+r)^t) where r is the interest rate and t is the time period Future value = 50000 r = 8% t = 5 Present value = 50000/((1.08)^5) Present value = 34029.16 Option 4 b) Future Value = Present Value*((1+r)^t) where r is the interest rate and t is the time period 25000 = 5000*(1+r)^5 (1+r)^5 = 5 1+r = 1.379 r = .379 or 37.9% c) Future Value = Present Value*((1+r)^t) where r is the interest rate and t is the time period 16000 = 2000 *(1.20)^t 1.20^t = 8 taking natural log on both sides tln1.20 = ln 8 t*.1823 = 2.0794 t = 11.4 years d) Future Value = Present Value*((1+r)^t) where r is the interest rate and t is the time period Lets say you have $100 and it becomes 300 in 8 years 300 = 100*(1+r)^8 (1+r)^8 = 3 1+r = 1.1472 r = .1472 r = 14.72%

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