Question

In: Finance

Leslie Mosallam, who recently sold her Porsche, placed $9 comma 600 in a savings account paying...

Leslie Mosallam, who recently sold her Porsche, placed $9 comma 600 in a savings account paying annual compound interest of 7 percent.

a.Calculate the amount of money that will accumulate if Leslie leaves the money in the bank for 3, 7, and 17 year(s).

b.Suppose Leslie moves her money into an account that pays 9 percent or one that pays 11 percent. Rework part (a) using 9 percent and 11 percent.

c.What conclusions can you draw about the relationship between interest rates, time, and future sums from the calculations you just did?

Solutions

Expert Solution

a)

3 Years:

Future value = Present value (1 + r)ⁿ

Future value = 9600 (1 + 0.07)³

Future value = 9600 * 1.225043

Future value = $11,760.41

7 Years:

Future value = Present value (1 + r)ⁿ

Future value = 9600 (1 + 0.07)⁷

Future value = 9600 * 1.605781

Future value = $15,415.50

17 Years:

Future value = Present value (1 + r)ⁿ

Future value = 9600 (1 + 0.07)¹⁷

Future value = 9600 * 3.158815

Future value = $30,324.63

b)

3 Years and 9%

Future value = Present value (1 + r)ⁿ

Future value = 9600 (1 + 0.09)³

Future value = 9600 * 1.295029

Future value = $12,432.28

7 Years and 9%:

Future value = Present value (1 + r)ⁿ

Future value = 9600 (1 + 0.09)⁷

Future value = 9600 * 1.828039

Future value = $17,549.18

17 Years and 9%:

Future value = Present value (1 + r)ⁿ

Future value = 9600 (1 + 0.09)¹⁷

Future value = 9600 * 4.327633

Future value = $41,545.28

3 Years and 11%

Future value = Present value (1 + r)ⁿ

Future value = 9600 (1 + 0.11)³

Future value = 9600 * 1.367631

Future value = $13,129.26

7 Years and 11%:

Future value = Present value (1 + r)ⁿ

Future value = 9600 (1 + 0.11)⁷

Future value = 9600 * 2.07616

Future value = $19,931.34

17 Years and 11%:

Future value = Present value (1 + r)ⁿ

Future value = 9600 (1 + 0.11)¹⁷

Future value = 9600 * 5.895093

Future value = $56,592.89

c)

There is a direct relationship between Future value and time & interest rate. the greater the time and interest rate, higher will be the future value.

jeff jeffy answered 1 month ago

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