Question

1/ How much must you invest at 7% interest in order to see your investment grow to $15,000 in 9 years? Use Appendix B. (Round "PV Factor" to 3 decimal places.)

$7,526

$8,160

$7,561

none of these

2/ Ambrin Corp. expects to receive $8,000 per year for 13 years and $9,500 per year for the next 13 years. What is the present value of this 26 year cash flow? Use an 10% discount rate. Use Appendix D and Appendix B. (Round "PV Factor" to 3 decimal places. Round your intermediate calculations to the nearest dollar value.) $76,393 $87,048 $124,303 none of these 3/ You will deposit $2,000 today. It will grow for 10 years at 10% interest compounded semiannually. You will then withdraw the funds annually over the next 8 years. The annual interest rate is 8%. Your annual withdrawal will be: Use Appendix A and Appendix D. (Round "PV Factor" and "FV Factor" to 3 decimal places.) $923 $2,178 $499 $4,170

Answer 1

Answer to Question 1:

Future Value = $15,000
Period = 9 years
Interest Rate = 7%

Amount Invested = $15,000 * PV of $1 (7%, 9)
Amount Invested = $15,000 * 0.544
Amount Invested = $8,160

Answer to Question 2:

Annual Payment for first 13 years = $8,000
Annual Payment for next 13 years = $9,500
Interest rate = 10%

Present Value = $8,000 * PVA of $1 (10%, 13) + $9,500 * PVA of $1 (10%, 13) * PV of $1 (10%, 13)
Present Value = $8,000 * 7.103 + $9,500 * 7.103 * 0.290
Present Value = $76,393

Answer to Question 3:

Calculation of accumulated sum after 10 years:

Amount deposited = $2,000

Annual interest rate = 10%
Semiannual interest rate = 5%

Semiannual period = 20 (10 years)

Future Value = $2,000 * FV of $1 (5%, 20)
Future Value = $2,000 * 2.653
Future Value = $5,306

Calculation of annual withdrawals:

Present value = $5,306
Interest rate = 8%
Period = 8 years

Annual withdrawal = $5,306 / PV of $1 (8%, 8)
Annual withdrawal = $5,306 / 5.747
Annual withdrawal = $923