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Calculate the future value of $9,000 invested (single amount) for ten years in an account with an APR of 6.3%. (Do not round interest rates.) a. If compounded annually? Future value = P (1+r)t 9,000(1+0.063) 1¹⁰- b.If compounded semiannually? c. If compounded monthly?

Calculate the future value of $9,000 invested (single amount) for ten years in an account with an APR of 6.3%. (Do not round interest rates.) a. If compounded annually? Future value = P (1+r)t 9,000(1+0.063) 1¹⁰- b.If compounded semiannually? c. If compounded monthly?

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA3: Time Value Of Money
Section: Chapter Questions
Problem 13E
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1. Calculate the future value of $9,000 invested (single amount) for ten years in an account with an APR of 6.3%. (Do not round interest rates.) a. If compounded annually? Future value = P (1+r)t 9,000(1+0.063)¹⁰= b. If compounded semiannually? c. If compounded monthly? d. Given equal rates, time, and investment amount, what effect does the frequency of compounding have on future values? What effect does the frequency of discounting have on present values? 2. Determine the rate that would be earned on a $25,000 investment if $100,000 is paid back in 25 years. Based on your answer, what factors would you consider in whether to invest or not. 3. A company has a $400 million liability that is due in 20 years. If the relevant discount rate is 5.25 percent, what is the present value of the liability? 4. What is the present value of an investment that will pay you $75 per year forever if the appropriate rate of return is 3%?
Transcribed Image Text:1. Calculate the future value of $9,000 invested (single amount) for ten years in an account with an APR of 6.3%. (Do not round interest rates.) a. If compounded annually? Future value = P (1+r)t 9,000(1+0.063)¹⁰= b. If compounded semiannually? c. If compounded monthly? d. Given equal rates, time, and investment amount, what effect does the frequency of compounding have on future values? What effect does the frequency of discounting have on present values? 2. Determine the rate that would be earned on a $25,000 investment if $100,000 is paid back in 25 years. Based on your answer, what factors would you consider in whether to invest or not. 3. A company has a $400 million liability that is due in 20 years. If the relevant discount rate is 5.25 percent, what is the present value of the liability? 4. What is the present value of an investment that will pay you $75 per year forever if the appropriate rate of return is 3%?
5. If Bank A charges 14.8% APR compounded monthly, and Bank B charges 15.1% APR compounded semiannually, which bank would you rather go to for a loan? 6. Investment X offers to pay you $3,000 per year for 9 years at the beginning of each year, whereas investment Y offers to pay you $5,000 per year for 5 years at the end of each year. Which of these investments has the higher present value if the discount rate is 5%? If the discount rate is 21%? 7. A client has an account balance of $16,200. You agree to a repayment schedule of $650 per month (beginning one month from today) and 14.4% (APR) interest on the outstanding balance. How long will it take the client to pay off the account? How much interest will you receive in total if the client makes all the payments? 8. You have been investing $120 a month for the last 15 years. Today, your investment account is worth $47,341.19. What is your average annual rate of return on your investment? 9. You are 40 years old and have just changed jobs. You have $75,000 in the retirement plan from your previous employer. You can roll that money into the retirement plan of your new employer. You will also contribute $5,000 each year into your new employer's plan. If the rolled-over money and the new contributions both earn an 8% return, how much would you expect to have when you retire in 25 years?
Transcribed Image Text:5. If Bank A charges 14.8% APR compounded monthly, and Bank B charges 15.1% APR compounded semiannually, which bank would you rather go to for a loan? 6. Investment X offers to pay you $3,000 per year for 9 years at the beginning of each year, whereas investment Y offers to pay you $5,000 per year for 5 years at the end of each year. Which of these investments has the higher present value if the discount rate is 5%? If the discount rate is 21%? 7. A client has an account balance of $16,200. You agree to a repayment schedule of $650 per month (beginning one month from today) and 14.4% (APR) interest on the outstanding balance. How long will it take the client to pay off the account? How much interest will you receive in total if the client makes all the payments? 8. You have been investing $120 a month for the last 15 years. Today, your investment account is worth $47,341.19. What is your average annual rate of return on your investment? 9. You are 40 years old and have just changed jobs. You have $75,000 in the retirement plan from your previous employer. You can roll that money into the retirement plan of your new employer. You will also contribute $5,000 each year into your new employer's plan. If the rolled-over money and the new contributions both earn an 8% return, how much would you expect to have when you retire in 25 years?
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