E6-10 Ind

E6-10 Ind - years Mike must wait to become a millionaire(b...

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E6-10 (Unknown Periods and Unknown Interest Rate) Consider the following independent situations. (a) Mike Finley wishes to become a millionaire. His money market fund has a balance of \$92,296 and has a guaranteed interest rate of 10%. How many years must Mike leave that balance in the fund in order to get his desired \$1,000,000? The number of interest periods is calculated by first dividing the future value of \$1,000,000 by \$92,296, which is 10.83471—the value \$1.00 would accumulate to at 10% for the unknown number of interest periods. The factor 10.83471 or its approximate is then located in the Future value of FVIF Table (since it is a lump sum) by reading down the 10% column to the 25-period line; thus, 25 is the unknown number of
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Unformatted text preview: years Mike must wait to become a millionaire. (b) Assume that Serena Williams desires to accumulate \$1 million in 15 years using her money market fund balance of \$182,696. At what interest rate must Serena’s investment compound annually? The unknown interest rate is calculated by first dividing the future value of \$1,000,000 by the present investment of \$182,696, which is 5.47357—the amount \$1.00 would accumulate to in 15 years at an unknown interest rate. The factor or its approximate is then located in the Future value of FVIF Table by reading across the 15-period line to the 12% column; thus, 12% is the interest rate Serena must earn on her investment to become a millionaire....
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This note was uploaded on 09/20/2008 for the course ACC 349 taught by Professor Christie during the Spring '08 term at University of Phoenix.

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