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Week_3_Solutions

# Week_3_Solutions - Interest Rate Year 0 Year 1 Year 2 Year...

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Question 3 Solution Rate 7.50% Tabulation Year Deposit Interest Balance OR Amount Years FV 0 \$5,000 0 \$5,000 (\$5,000) 0 \$10,305 =FV(7.5%,10-I8,,H8) 1 \$1,000 \$375.0 \$6,375 (\$1,000) 1 \$1,917 =FV(7.5%,10-I9,,H9) 2 \$1,000 \$478.1 \$7,853 (\$1,000) 2 \$1,783 =FV(7.5%,10-I10,,H10) 3 \$0 \$589.0 \$8,442 FW \$14,006 =SUM(J8:J10) 4 \$0 \$633.2 \$9,075 5 \$0 \$680.6 \$9,756 OR Amount Years PV 6 \$0 \$731.7 \$10,488 (\$5,000) 0 \$5,000 7 \$0 \$786.6 \$11,274 (\$1,000) 1 \$930 8 \$0 \$845.6 \$12,120 (\$1,000) 2 \$865 9 \$0 \$909.0 \$13,029 PW \$6,796 =SUM(J8:J10) 10 \$0 \$977.2 \$14,006 FW \$14,006 OR Present value of years1-2 \$1,796 =PV(C5,2,-1000,0) Year 0 \$5,000 sum to get PW \$6,796 FW \$14,006 =FV(C5,10,0,-J22) Ben deposits \$5,000 now into an account that earns 7.5  percent interest compounded annually. He then deposits  \$1,000 per year at the end of the first and second years and no  more. How much will the account contain 10 years after the  initial deposits?

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Question 4 Solution Rate 7% Compounded Annually A tabulation shows this well. Deposit Withdrawal Interest Balance 0 \$2,000.00 \$0.00 \$0.00 \$2,000.00 1 \$0.00 \$0.00 \$140.00 \$2,140.00 2 \$0.00 \$0.00 \$149.80 \$2,289.80 3 \$0.00 -\$1,000.00 \$160.29 \$1,450.09 4 \$0.00 \$0.00 \$101.51 \$1,551.59 5 \$3,000.00 \$0.00 \$108.61 \$4,660.20 6 \$0.00 \$0.00 \$326.21 \$4,986.42 7 \$0.00 \$0.00 \$349.05 \$5,335.47 8 \$1,500.00 \$0.00 \$373.48 \$7,208.95 9 \$0.00 \$0.00 \$504.63 \$7,713.58 10 \$0.00 \$0.00 \$539.95 \$8,253.53 11 \$0.00 \$0.00 \$577.75 \$8,831.27 NPV \$5,011.97 (\$816.30) \$4,195.67 FW= \$8,831.27 Deposit Withdrawal Net 0 \$2,000.00 \$0.00 \$2,000.00 1 \$0.00 \$0.00 \$0.00 2 \$0.00 \$0.00 \$0.00 3 \$0.00 -\$1,000.00 (\$1,000.00) 4 \$0.00 \$0.00 \$0.00 5 \$3,000.00 \$0.00 \$3,000.00 6 \$0.00 \$0.00 \$0.00 7 \$0.00 \$0.00 \$0.00 8 \$1,500.00 \$0.00 \$1,500.00 9 \$0.00 \$0.00 \$0.00 10 \$0.00 \$0.00 \$0.00 11 \$0.00 \$0.00 \$0.00 NPV= \$4,195.67 FW= \$8,831.27 Determine PV of each transaction, sum and determine future value. Year Amount PV Transaction 0 (\$2,000.00) \$2,000.00 3 \$1,000.00 (\$816.30) 5 (\$3,000.00) \$2,138.96 8 (\$1,500.00) \$873.01 PW = Sum \$4,195.67 11 FW \$8,831.27 Determine the FV in period 11 of each transaction, and sum. Year Amount FV Transaction 0 (\$2,000.00) \$4,209.70 3 \$1,000.00 (\$1,718.19) 5 (\$3,000.00) \$4,502.19 8 (\$1,500.00) \$1,837.56 11 Sum = FW \$8,831.27 If you invest \$2,000 today, withdraw \$1,000 in 3 years, deposit \$3,000 in 5 years, deposit \$1,500 in 8 years, and withdraw the entire sum 3 years after the final deposit, how much will you withdraw? Interest is 7% compounded annually. End of year An alternative is as follows. Determine the PV of each deposit and each withdrawal, sum these, and then find the future value in year 11 of this sum. Using negative signs that reflect the movement of money from your pocket (deposits) and positive signs for what comes into your pocket (withdrawals), makes the future value be positive, which it should be. Determine the NPV of deposits and withdrawals, sum, and find future value in year 11. The PV is entered as negative since the tablulation had deposits as positive and withdrawal as negative. and find future value in year 11. End of year
Question 5 Solution Rate 5% Periods 10 Years PMT \$1,000 PV 0 FV= ?? FW FV= \$12,577.89 =FV(C5,C6,-C7,C8) You deposit \$1,000 in a fund at the end of each year for 10 years. The fund pays 5 percent compounded annually. How much money is available to withdraw immediately after your last deposit?

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Question 6 a What amount must you invest today if your return is 10 percent per year?
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