Question

a)You plan to save $5,400 per year for the next 12 years. After the last deposit, you will keep the money in the account for 5 more years. The account will earn an interest rate of 5.7 percent. How much will there be in the account 17 years from today?

$148,368.04

$89,517.93

$30,258.50

$229,712.61

$118,109.54

B)Your grandparents put $12,400 into an account so that you would have spending money in college. You put the money into an account that will earn 4.63 percent compounded monthly. If you expect that you will be in college for 4 years, how much can you withdraw each month?

$297.66

$288.91

$274.04

$283.49

$282.40

c)you are going to deposit $3,500 in an account that pays .61 percent interest compounded quarterly. How much will you have in 7 years?

$4,154.34

$4,149.73

$4,143.38

$4,124.57

$4,175.05

Answer 1

a)

$118,109.54

Working:

1)

Future Value in 12 years

=

Annual deposit x Future value of annuity of $ 1

=

$       5,400.00

x

16.5774

=

$     89,517.93

2)

Future value of annuity of $ 1

=

(((1+i)^n)-1)/i

Where,

=

(((1+0.057)^12)-1)/0.057

i

5.70%

=

16.57739501

n

12

3)

Future Value in 17 years

=

$     89,517.93

x (1+0.057)^5

=

$ 1,18,109.54

b)

$283.49

Working:

1)

Present value of annuity of $ 1

=

(1-(1+i)^-n)/i

Where,

=

(1-(1+0.00386)^-48)/0.00386

i

4.63%/12

=

0.00386

=

43.741

n

4*12

=

48

2)

Monthly withdrawl

=

Amount at the beginning / Present value of annuity of $ 1

=

$     12,400.00

/

43.741

=

$           283.49

c)

$ 4,149.73

Working:

Future Value

=

Investment x Future value of annuity of $ 1

=

$       3,500.00

x

1.1856

=

$       4,149.73

Future Value of annuity of 1

=

(1+i)^n

Where,

=

(1+0.0061)^28

i

0.0061

=

1.1856

n

7*4

=

28