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In: Finance

You have $19,000 you want to invest for the next 28 years. You are offered an...

You have $19,000 you want to invest for the next 28 years. You are offered an investment plan that will pay you 8 percent per year for the next 14 years and 12 percent per year for the last 14 years. How much will you have at the end of the 28 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Account value $

If the investment plan pays you 12 percent per year for the first 14 years and 8 percent per year for the next 14 years, how much will you have at the end of the 28 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Account value $

Solutions

Expert Solution

1.

Formula for compound interest:

A = P x (1 + r/m) mt

A = Future value of investment

P = Principal

r = Rate of interest

m = No. of compounding in a year

t = No. of years

Value of $ 19,000 after 14 years = $ 19,000 x (1+0.08/1)44

                                               = $ 19,000 x (1.08)14

                                               = $ 19,000 x 2.937193624

                                              = $ 55,806.68

$ 55,806.68 is deposited for 14 years at discount rate of 12 %

Value of $ 55,806.68 after 14 years = $ 55,806.68 x (1+0.12/1)14

                                                   = $ 55,806.68 x (1.12)14

                                                    = $ 55,806.68 x 4.887112285

                                                    = $ 272,733.51

Total future value of deposit after 28 years is $ 272,733.51

2.

Value of $ 19,000 after 14 years = $ 19,000 x (1+0.12/1)44

                                                = $ 19,000 x (1.12)14

                                                = $ 19,000 x 4.887112285

                                                 = $ 92,855.13

$ 92,855.13 is deposited for 14 years at discount rate of 8 %

Value of $ 92,855.13 after 14 years = $ 92,855.13 x (1+0.08/1)14

                                                   = $ 92,855.13 x (1.08)14

                                                   = $ 92,855.13 x 2.937193624

                                                   = $ 272,733.51

Total future value of deposit after 28 years is $ 272,733.51

jeff jeffy answered 2 years ago
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