Question

Judy Dench took up the government offer on the “Special Early Retirement Programme” and received a lump sum payment of J$3.5M. After clearing her mortgage and credit card debts she has J$1.5M remaining. She saw an advertisement recently in the local newspaper where JMMB was offering three investments offer to the public as follow:

Investment Product	Interest Rate	Term	Conditions
Investment A	16%	5 years	Interest is compounded annually. Principal & Interest is paid at the end of the 5 years.
Investment B	13.80%	6 years	Interest is compounded annually. Principal & Interest is paid at the end of the 6 years.
Investment C	11.60%	7 years	Interest is compounded annually. Principal & Interest is paid at the end of the 7 years.

If Judy wants to invest only J$1,000,000; which one of the investment products based on calculations would you recommend her to invest in?                                                       

B. John Travolta plans on investing the following cash flows at the beginning of each year:

            Year                Cash Flow

            2019                $30 000

            2020                $40 000

            2021                $60 000

            2022                $90 000          

            2023                $20 000

How much would John accumulate at the end of 2023 if the interest rate is compounded annually at an interest rate of 9.8%?

Answer 1

a

Investment product	A	B	C
Investment amount	$          1,000,000	$       1,000,000	$     1,000,000
n=	5	6	7
I/Y =	16%	13.80%	11.60%
Future value	$2,100,341.66	$2,171,968.75	$2,156,003.01

Future value under option B is highest.

Product B is better option.

b

Year	2019	2020	2021	2022	2023
Investment amount	$               30,000	$            40,000	$           60,000	$       90,000	$      20,000
n=	5	4	3	2	1
I/Y =	9.8%	9.8%	9.8%	9.8%	9.8%
Future value	$47,877.66	$58,139.24	$79,425.19	$108,504.36	$21,960.00
Total of future value	$315,906.46

Amount at the end of 2023 is 315,906.46

Please rate.