Lesson #3, Assignment #2

# Lesson #3, Assignment #2 - answer Since they are the...

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Solve the following problems; you may submit in a Word or Excel document, whichever you find convenient. As always, it is recommended that you show your work so that in the event your final answer is incorrect, your instructor may be able to award you partial credit. 1. You are scheduled to receive \$20,000 in two years. When you receive it, you will invest it for six more years at 8.4% per year. How much will you have in eight years? (Question #19 from page 143 of your text) We need to find the FV of a lump sum. However, the money will only be invested for six years, so the number of periods is six. FV = PV (1 + r) t FV = \$20,000(1.084)6 = \$32,449.33 2. You expect to receive \$10,000 in two years. You plan on investing it at 11% until you have \$75,000. How long will you wait from now? (Question #20 from page 143) To answer this question, we can use either the FV or the PV formula. Both will give the same

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Unformatted text preview: answer Since they are the inverse of each other. We will use the FV formula, that is: FV = PV (1 + r) t Solving for t, we get: t = ln(FV / PV) / ln(1 + r) t = ln(\$75,000 / \$10,000) / ln(1.11) = 19.31 So, the money must be invested for 19.31 years. However, you will not receive the money for Another two years. From now, you’ll wait: 2 years + 19.31 years = 21.31 years 3. You're trying to save to buy a new \$170,000 Ferrari. If you believe that your mutual fund will achieve a 12% per year rate of return, and you want to buy the car for your birthday in 9 years, how much must you invest today? (Question #17 from page 142) To find the PV of a lump sum, we use: PV = FV / (1 + r)t PV = \$170,000 / (1.12)9 = \$61,303.70...
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Lesson #3, Assignment #2 - answer Since they are the...

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