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WK2 Homework

# WK2 Homework - WEEK 2 HOMEWORK P3-1 You have \$1,500 to...

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1 WEEK 2 HOMEWORK P3-1. You have \$1,500 to invest today at 7 percent interest compounded annually. a. How much will you have accumulated in the account at the end of the following number of years? 1. Three years 2. Six years 3. Nine years b. Use your findings in part (a) to calculate the amount of interest earned in 1. the first three years (years 1 to 3) 2. the second three years (years 3 to 6) 3. the third three years (years 6 to 9) c. Compare and contrast your findings in part (b). Explain why the amount of interest earned increases in each succeeding 3-year period. Future Value: FV n = PV (1 + r) n or FV n = PV (FVF r%,n ) a. 1. FV 3 = PV (1.07) 3 FV 3 = \$1,500 (1.225) FV 3 = \$1,837.57 2. FV 6 = PV (1.07) 6 FV 6 = \$1,500 (1.50073) FV 6 = \$2,251.10 3. FV 9 = PV (1.07) 9 FV 9 = \$1,500 (1.838) FV 9 = \$2,757.69 b. 1. Interest earned = FV 3 PV Interest earned = \$1,837.57 -1,500.00 \$ 337.57 2. Interest earned = FV 6 FV 3 Interest earned = \$2,251.10 = -1,837.57 \$ 413.53 3. Interest earned = FV 9 FV 6 Interest earned = \$2,757.69 -2,251.10 \$ 506.59

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2 c. The fact that the longer the investment period the larger the total amount of interest collected is not unexpected and is due to the greater length of time that the principal sum of \$1,500 is invested. The most significant point is that the incremental interest earned per 3 year period increases with each subsequent 3 year period. The total interest for the first 3 years is \$337.57,
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WK2 Homework - WEEK 2 HOMEWORK P3-1 You have \$1,500 to...

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