Question

Exercise 6-2 Chris Jackson invests $53,400 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Chris withdraws the accumulated amount of money. Compute the amount Chris would withdraw assuming the investment earns simple interest. (Round answers to decimal places, e.g. 458,581.) Total withdrawn LINK TO TEXT LINK TO TEXT Click here to view factor tables Compute the amount Chris would withdraw assuming the investment earns interest compounded annually. (Round Factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581) Total withdrawn LINK TO TEXT LINK TO TEXT Click here to view factor tables Compute the amount Chris would withdraw assuming the investment earns interest compounded semiannually. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to o decimal places, e.g. 458,581.)

Answer 1

Solution 1a:

Amount to be withdrawn = Investment + Interest = $53,400 + $53,400*8%*8 = $87,576

Solution 1b:

Future value = $53,400 * (1+0.08) ^ 8 = $53,400 * 1.85093 = $98,840

Solution 1c:

Semiannual interest rate = 8%/2 = 4%

Nos of semiannual periods = 8*2 = 16

Future value = $53,400 * (1+0.04)^16

= $53,400 * 1.87298 = $100,017

Solution 2a:

Future value = $23,800

Amount to be invested = $23,800 / (1+0.12)^5 = $23,800 / 1.76234 = $13,505

Solution 2b:

Future value = $23,800

Quarterly interest rate = 12%/4 - 3%

Nos of quarterly periods = 5*4 = 20

Amount to be invested = $23,800 / (1+0.03)^20

= $23,800 / 1.80611

= $13,177