Question

1. Suppose an investor invests $2,000 in a Certificate of Deposit which earns eight percent compounded quarterly. What is the value of the CD in five years

   		a.$2,208
   		b.$2,939
   		c.$2,800
   		d.$2,972
   		e.None of the above

2. Suppose an investor invests $2,000 at the beginning of each year. What will be the value of the investment at the end of ten years if he earns ten percent?

		$31,875
		$35,062
		$13, 518
		$12,289
		$20,000

3. You could gift any number of people _____ per year without having to pay any gift taxes.

		$36,000
		$20,000
		$50,000
		$15,000

Answer 1

Solution:-

Future value = Present value * (1+rate)ⁿ

1) Calculation of Fiuture value of Certificate of deposits:

Given,

Present value = $2,000

rate = 8%/4 = 0.02

time period = 5 * 4 = 20

Future value = $2,000 * (1+0.02)²⁰

= $2,000 * 1.48594739

= $2,971.904 or $2,972 approx

Therefore the value of certificates of deposits in 5 years is $2,972 which is option d.

2) Calculation of Future value:

Future value = payment * [(1+r)ⁿ - 1] * (1+r) / r

Given,

yearly payment = $2,000

rate = 10% or 0.1

time = 10 years

Future value = $2,000 * [(1+0.1)¹⁰ - 1] * (1+0.1) / 0.1

= $2,000 * 1.59374 * 1.1 / 0.1

= $2,000 * 17.53114

= $35,062.68

Therefore the future value is $35,062 which is option 2.

3) Answer is $15,000 which is option 4.

The limit by the IRS to pay gift to people without paying taxes for since the year 2018 is $15,000.You can pay gift to people without paying taxes on that.