Question

Carolina used to keep its excess cash with Fidelity Money Market fund. Over the last few years this fund has been posting an average return of 0.15% per month and you believe this performance pattern will continue into foreseeable future. Carolina invests into this account: 3,000,000 today; will add another 2,000,000 in 1 year and add another 3,000,000 in 2 years. How much will be in this account in 6 years? (Assume constant interest rate and no more additions/withdrawals).

Answer 1

a.
	Future Value of today's Investment
	Future Value		=	Present Value x Future Value of Investment of 1
			=	$              30,00,000	x	1.113958
			=	$        33,41,872.80
	Working:
	Future Value of Investment of 1
			=	(1+i)^n		Where,
			=	(1+0.15%)^72		i	0.15%
			=	1.113958		n	6*12	=	72
b.	Future Value of Investment in Year 1
			=	Investment x Future Value of investment of 1
			=	$              20,00,000	x	1.094101
			=	$        21,88,201.01
	Working:
	Future Value of Investment of 1
			=	(1+i)^n		Where,
			=	(1+0.15%)^60		i	0.15%
			=	1.094101		n	5*12	=	60
c.	Future Value of Invesment in Year 2
			=	Investment x Future Value of investment of 1
			=	$              30,00,000	x	1.074597
			=	$        32,23,792.12
	Working:
	Future Value of Investment of 1
			=	(1+i)^n		Where,
			=	(1+0.15%)^48		i	0.15%
			=	1.074597		n	4*12	=	48
d.
	Future Value of Investment of today				$    33,41,872.80
	Future Value of Investment of Year 1				$    21,88,201.01
	Future Value of Investment of Year 2				$    32,23,792.12
	Future Value in Year 6				$    87,53,865.93
	Thus,
	Amount in this account in 6 years will be				$    87,53,865.93