Question 1 Adam Smith is thinking about investing $500,000 into an account that guarantees 2.5% interest....

Question 1

Adam Smith is thinking about investing $500,000 into an account that guarantees 2.5% interest. Calculate the value of the account one year from now. (Round to 2 decimals)

Question 2

Adam Smith wants to have $65,000 next year. Assuming an interest rate of 8%, how much would he need to deposit today into the account. (Enter a positive value and round to 2 decimals)

Solutions

Expert Solution

Question 1.

Present value = $500000

Interest rate (r) = 2.5% or 0.025

Solution :-

Value of the account one year from now = Present value x (1 + r)

= $500000 x (1 + 0.025)

= $500000 x (1.025) = $512500.00

Question 2.

Future value = $65000

Interest rate (r) = 8% or 0.08

Solution :-

Present value = Future value/(1 + r)

= $65000/(1 + 0.08)

= $65000/1.08 = $60185.19

He would be need to deposit $60185.19 today.

jeff jeffy answered 2 years ago

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