Question

On the next 10 questions, express monetary answers to the nearest whole dollar and percentages to the
nearest hundredth. Round months to the nearest tenth on Question 20.
For example, $1,234,567 (don’t include the cents) is appropriate for a monetary answer. For percentages, an
appropriate example is 12.34%. Do not round 12.34% to 12.3% or 12%

15. Charles wants to retire in 20 years and he has $124,650 in his retirement account today. His retirement
account compounds quarterly. His Uncle Stan and Aunt Claudia have established a trust fund for him that will
pay $165,000 to him in 15 years. Stan and Claudia have locked in an interest rate of 7.84 percent,
compounded quarterly, that will continue after Charles receives the $165,000. He wants the sum of the trust
and his retirement account to equal $975,000 upon retirement in 20 years. What annual rate will Charles need
to earn on the retirement account to achieve this goal?

16. Compute the combined present value of $6,000 paid in five years and $4,500 paid in seven years using the
following discount rates: 6.25 percent in years 1 and 2, 5.85 percent in years 3 and 4, 4.82 percent in years 5
and 6 and 4.36 percent in year 7.

17. What annual rate of return is earned on a $39,450 investment that grows to $72,864 in eight years if the
account is compounded quarterly?

Answer 1

Ans -15

1. First we should calculate the the annualised return on trust as it is compounded quarterly.

[(1+Quarterly return)^N-1] where

Quarterly return is Annual return/4

2. Post that we should know what will be the value of trust amount after 20 year.(PV * (1+annualised rate)^N)

3. Post that, we can get the amount required from retirement fund after 20 year (total required - trust value after 20 years)

4. Then we should calculate the require rate of return with below formula

FV = PV* (1+R)^N

Ans 16

Ans 17