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2 Answer: (a) FV = (\$5,000)(1.12) 39 + (\$6,000)(1.12) 38 + (\$8,000)(1.12) 37 + (\$9,500)(1.12) 36 + (\$11,000)(1.12) 35 + FVA 13,000 @ 12%, 35 yrs = \$2,532,923 + \$5,611,625 = \$8,144,548 . (b) Each contribution earns one more year of interest; so, FV = (a) * 1.12 = \$8,144,548 * 1.12 = \$9,121,894 . Question 2 (TVM) (24 marks) This question has 3 independent parts. (a) You’ve just received a birthday gift of \$325 and want to apply what you’ve learned in ADMS3530 in choosing between two investment opportunities. Option 1; Invest the \$325 at a return of 14% per year (simple interest) over 2 years. Option 2; Invest \$325 at 14% over the same period at the same rate but the interest is compounded quarterly. How much more interest will you have earned under option 2 than under option 1. (8 marks) Answer: Option 1; Simple Interest per year = \$325 x 14% = \$45.50; over 2 years \$45.50 x 2 = \$91.00 Option 2: Compound Interest FV = PV (1+r) t = \$325 (1 + 0.14/4) 8 = \$427.96 Interest earned = \$427.96 - \$325 = \$102.96 Therefore you would have earned \$102.96 – 91.00 = \$11.96 more in interest under option 2 than option 1. (b) Prior to shopping around for a car you decide to pre-qualify for an auto loan at your
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