Scenario: You make a $2,000 deposit to a retirement account today. The account earns a 7.65%...

Scenario: You make a $2,000 deposit to a retirement account today. The account earns a 7.65% rate of interest (i.e. APR) compounded quarterly. What is the value of the investment in 6 years?

Scenario: Suppose you want to take out a $150,000 semi annual loan from a bank. The maximum semi-annual payment you can afford is 7,000. The market interest rates are 7.90 APR.

Under these conditions, what would the term of this loan be? (round answer to the nearest whole year)

Solutions

Expert Solution

Solution

Answering question first only as per Chegg's guidelines

1.Calculation of value of investment in 6 year(Future value)

Present value=$2000

N=6

Since interest rate is compounding quarterly,thus we need to calculate effective annual rate as follwo:

EAR=[1+(APR/No.of compounding)]^no.of compounding in a year-1

=[1+(0.0765/4)]^4-1

=0.07872 or 7.872%

Future value=Present value(1+EAR)^N

=$2000(1+0.07872)^6

=$3151.29

jeff jeffy answered 2 years ago

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