You have $100,000 in an account that earns 2% APR (Compounded monthly) You want to earn...

You have $100,000 in an account that earns 2% APR (Compounded monthly)
You want to earn a higher rate of return and therefore are considering two alternative investments. You will put your $100,000 in one of the two new accounts.
Investment 1 will pay you $860 per month for starting next month 120 months.
Investment 2 will pay you $2,600 per month for starting next month 40 months.

Which account should you choose and how much does it increase your net worth?

Choose Investment 2 it increases your net worth by $528

Choose Investment 1 it increases your net worth by $544

Choose Investment 2 it increases your net worth by $508

Choose Investment 2 it increases your net worth by $547

Solutions

Expert Solution


	INVESTMENT 1
Rate	Monthly interest rate=(2/12)%	0.1667%
Nper	Number of months	120
Pmt	Monthly payment	$860
PV	Present Value of Payments	$93,464.59	(Using excel PV function with Rate=0.1667%, Nper=120, Pmt=-860)


	INVESTMENT 2
Rate	Monthly interest rate=(2/12)%	0.1667%
Nper	Number of months	40
Pmt	Monthly payment	$2,600
PV	Present Value of Payments	$100,528.11	(Using excel PV function with Rate=0.1667%, Nper=40, Pmt=-2600)

	ANSWER:
	Choose Investment 2 it increases your net worth by $528

jeff jeffy answered 5 hours ago

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