In: Finance
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)
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.