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finance calculations
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Donna enters into an investment contract that will guarantee her 4% per year if she deposits $3,500 each year for the next 10 years. She must make the first deposit one year from today, the day she signs the agreement. How much will she have when she makes her last payment 10 years from now?
Donna enters into an investment contract that will guarantee her 4% per year if she deposits $3,500 ...
FV = P * ((1 + r) ^n - 1) / r Where: FV is the future value, P is the annual deposit ($3,500), r is the interest rate per period (4% or 0.04), n is the number of periods (10 years).
FV=$3,500×12.006
FV=$42,021.49
Assume the same facts as in problem 2 above, except that Donna negotiates the chance to make her first payment now and continue to pay at the beginning of each year for the 10-year period. How much will she have accumulated?
Assume the same facts as in problem 2 above, except that Donna negotiates the chance to make her fir...
FV = P * ((1 + r) ^n - 1) / r ×(1+r)
Given:
P=$3,500
r=0.04 (4% annual interest rate)
n=10 (10 years)
FV= 3500*[((1+0.04)10-1)/0.04] *1+0.04
FV=$3,500×(0.48024/0.04)×1.04
FV=$3,500×12.006×1.04
FV=$3,500×12.487
FV=$43,702.35
You hire Thomas to work for you for five years, and you agree to put away enough money as a lump sum now to fund an annuity for him. At the end of those five years, he will retire and may begin drawing out $20,000 per year for five years, starting on the last day of each year (in this case, the end of year 6, from when this arrangement began, through year 10). How much must you invest today if your guaranteed interest rate is 3% compounded annually for all 10 years?
You hire Thomas to work for you for five years, and you agree to put away enough money as a lump sum...
To determine how much you must invest today to fund the annuity for Thomas, we need to calculate the present value of the annuity payments he will receive during his retirement.
PV = P * ((1-(1 + r)) ^-n) / r
P=$20,000 (annual annuity payment)
r=0.03 (3% annual interest rate)
n=5 (number of years Thomas will receive payments)
PV= 20,000((1-(1+0.03))^-5)/0.03
PV=20,000(1-(1.03)^-5)/0.03
PV=$20,000×4.58
PV=$91,594.1
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