Question

1. If you inherited $55,000 today and invested all of it in a security that paid a 13 percent rate of return, how much would you have in 20 years? Round the answer to the nearest cent. Round FV-factor to three decimal places.

   Calculate your answer based on the FV-factor.

   $ _____

   Calculate your answer based on the financial calculator.

   $ _______

2. If the average new home costs $270,000 today, how much will it cost in 12 years if the price increases by 3 percent each year? Round the answer to the nearest cent. Round FV-factor to three decimal places.

   Calculate your answer based on the FV-factor.

   $ ______

   Calculate your answer based on the financial calculator.

   $ ______

Answer 1

1. Answer based on the FV-factor is $ 633,769.83

We are given the following information:

investment made now at time 0	PV	$          55,000.00
rate of interest	r	13.00%
number of years	n	20
Future Value	FV	To be calculated

We need to solve the following equation to arrive at the required FV

Answer based on the financial calculator: $633,769.83 rounded to nearest cent

Inputs to financial calculator are PV = -55000, N = 20, I/Y = 13, PMT = 0, CPT FV

PV is negative because we need to part with 55000 now to gain the FV after 20 years, so it is like an outflow because we cant use this money if we want it to grow.

2.Answer based on the FV-factor:  $384,955.44

We are given the following information:

Cost of home now at time 0	PV	270,000.00
rate of interest	r	3.00%
number of years	n	12
Future Value	FV	To be calculated

We need to solve the following equation to arrive at the required FV

Answer based on the financial calculator:  $384,955.44

Inputs to financial calculator are PV = -270000, N = 12, I/Y = 3, PMT = 0, CPT FV

PV is negative because think of buying a home now, tthen you need to part with 270000 now but after 12 years the value of your home will grow to $384,955.44