Question

1) You make a single investment in a contract that offers the annual returns stated in the column.What is the value of your contract when it matures at the end of year ten.You can use the FVSCHEDULE function in EXCEL, only enter a number in the format, 3,4236.07

time	contractual rates of interest
1	5%
2	6%
3	7%
4	8%
5	9%
6	10%
7	11%
8	12%
9	13%
10	14%

2) You make a single investment in a contract that offers the annual returns stated in the column.What is the value of your contract when it matures at the end of year ten.You can use the FVSCHEDULE function in EXCEL, only enter a number in the format, 3,4236.07

time	contractual rates of interest
1	2%
2	3%
3	4%
4	5%
5	6%
6	7%
7	8%
8	9%
9	10%
10	11%

3) Assume you must pay taxes on the returns you when you sell them. You invested in the common stock of facebook when it was selling for $30 per share. It now sells for $185 six years later. You are going to sell the 100 shares you bought. What is your after tax annual return on this investment. You must pay 20% of your gains in capital gains tax to the U.S. government. Your annual return is over 20% per year.

4) Assume you do not pay taxes on investment returns you when you sell. You invested in the common stock of facebook when it was selling for $30 per share. It now sells for $185 six years later. You are going to sell the 100 shares you bought. What is your annual rate of return on this investment. Your annual return is over 40% per year.

Answer 1

1) Value of contract when it matures in 10 years = $84553.21

2) Value of contract when it matures in 10 years = $64032.35

3) Capital gain on selling stock of facebook = (Sale price - purchase price)* number iof shares

= (185-30)*100

= $15500

Tax on capital gains = 15500*20% = $3100

Annual return on stock = (100*185)*20%

= $3700

After tax return on investment = [(15500-3100) + 3700] / 3000

= 537%

4)

Capital gain on selling stock of facebook = (Sale price - purchase price)* number iof shares

= (185-30)*100

= $15500

Annual return on stock = (100*185)*40%

= $7400

Annual return on investment = [15500 + 7400] / 3000

= 763%