12.. value: 2.50 points Problem 4-4 (LO4.3) For each of these situations, determ

Question

12.. value: 2.50 points Problem 4-4 (LO4.3) For each of these situations, determine the savings amount. Use the time value of money tables in Exhibit 1-A, Exhibit 1-B. Exhibit 1-C. a. What would be the future value of a savings account started with $450, earning 7 percent (compounded annually) after 7 years? (Round time value factor to 3 decimal places and final answer to the nearest whole dollar.) Future value b. Brenda Young desires to have $8,000 eight years from now for her daughter's college fund. If she will earn 6 percent (compounded annually) on her money, what amount should she deposit now? Use the present value of a single amount calculation. (Round time value factor to 3 decimal places and final answer to the nearest whole dollar) Present value c. What future value amount would you have if you deposited $1,400 a year for 30 years at 7 percent (compounded annually)? (Round time value factor to 3 decimal places and final answer to the nearest whole dollar.) Future value

Explanation / Answer

a.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Hence

A=$450*(1.07)^7

=$450*1.606

=$723(Approx).

2.

8000=P(1.06)^8

P=8000/1.06^8

=$8000*0.627

=$5016(Approx).

3.

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=$1400[(1.07)^30-1]/0.07

=$1400*94.461

=$132,245(Approx).

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