Question

You deposit $15,700 into an account this morning. The account pays interest at a rate of 7.1 percent per year. How much will be in your account 16 years from today?

Group of answer choices

$54,911.19

$33,535.20

$61,603.83

$51,818.31

$47,046.92

Sixty years ago, your mother invested $7,200. Today, that investment is worth $379,250.53. What is the average annual rate of return she earned on this investment?

Group of answer choices

6.83 percent

7.90 percent

5.92 percent

4.77 percent

Answer 1

1.Information provided:

Present value= $15,700

Time= 16 years

Interest rate= 7.1%

The question is solved by computing the future value of annuity due.

Enter the below to calculate the future value of annuity due:

PV= -15,700

N= 16

I/Y= 7.1

Press the CPT key and FV to calculate the future value of annuity due.

The value obtained is 47,046.92.

Therefore, the future value in 16 years is $47,046.92.

Hence, the answer is option e.

2.Information provided:

Future value= $379,250.53

Current price= present value= $7,200

Time= 60 years

The question is calculated by computing the yield to maturity.

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 379,250.53

PV= -7,200

N= 60

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 6.83.

Therefore, the average annual rate of return is 6.83%.

Hence, the answer is option a.

In case of any query, kindly comment on the solution.