Business Studies, asked by sonitanya140, 9 months ago

Week 3
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an
additional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years,
and 6.5%, compounded annually, for the last five years.
Required:
a) What is the effective annual interest rate (EAR) you would get for your investment in the first 10
years? (2 marks)
b) How much money do you have in your account today? (4 marks)
c) If you wish to have $85,000 now, how much should you have invested 15 years ago? (4

Answers

Answered by rajv41724

Answer:

Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an

additional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years,

and 6.5%, compounded annually, for the last five years.

Required:

a) What Is the effective annual interest rate (EAR) you would get for your investment in the first 10

years? (2 marks)

b) How much money do you have in your account today? (4 marks)

c) If you wish to have $85,000 now, how much should you have invested 15 years ago? (4 marks)

Week 4

Answered by skyfall63

Explanation:

(a) Effective Annual rate = {[ 1+ ( Nominal rate/ No. of. Compounding in a year)]^n} - 1

[ 1+ (0.08/2)^2] -1

= 1.0816 -1

= 0.0816 or 8.16%

(b) Money that we have in account today is

The present Value = 12500 @ 8% for 15 years

Amount that was deposited 5 years ago 20000 @ 6.5 % for 5 years

FV for 10 years = $27389.04 (Formula: FV = A * {(1 + r)^n - 1} / r)

PV for 5 years = $ 47389.04 ( Formula : PV = FV / (1 + r)^n)

FV for 5 years = $ 64927.09

Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth in the future. Knowing the future value enables investors to make sound investment decisions based on their anticipated needs. However, external economic factors, such as inflation, can adversely affect the future value of the asset by eroding its value.
The "present value" of a "future money" or "cash flow stream", considering a specified return rate, is the ""current value. ." The discounted rate for future cash flows and the "higher the discount rate", the "lower" the "present value" of "future cash flows".

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