Question

1-

How much must you invest at 11% interest in order to see your investment grow to $31,000 in 13 years? Use Appendix B to calculate the answer.

• $7,399

• none of these

• $7,364

• $7,998

2-

Sharon Smith will receive $1.03 million in 25 years. The discount rate is 10%. As an alternative, she can receive $94,760 today. Which should she choose? Use Appendix B to calculate the answer.

• $94,760 today.

• the $1.03 million dollars in 25 years.

• she should be indifferent.

• need more information.

Answer 1

1)	$    7,998
Working:
	Present value	=	Future value	x	Present value of 1
		=	$             31,000	x	0.258
		=	$                7,998
	Working:
	Present value of 1	=	(1+i)^-n		Where,
		=	(1+0.11)^-13		i	11%
		=	0.258		n	13
2)	she should be indifferent.
Working:
Present value of $ 1.03 million in 25 years		=	Future value	x	Present value of 1
		=	$       10,30,000	x	0.092
		=	$             94,760
Present value of 1		=	(1+i)^-n		Where,
		=	(1+0.10)^-25		i	10%
		=	0.092		n	25