Question

a. The cost of a new automobile is $11,900 lf he interest rate is 4%, how much would you have to set aside now to provide this sum in four years? Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value b, You have to pay $15,000 a year in school fees at the end of each of the next five years. If the Interest rate is 7%, how much do you need to set aside today to cover these bills? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value c. You have invested $75,000 at 7%. After paying the above school fees, how much would remain at the end of the five years? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Future value

Answer 1

Answer to Question 1:

Answer a.

Amount required = $11,900
Interest rate = 4%
Period = 4 years

Present Value = Future Value / (1 + Interest Rate)^Period
Present Value = $11,900 / 1.04^4
Present Value = $10,172.17

Answer b.

Annual payment = $15,000
Interest rate = 7%
Period = 5 years

Present Value = $15,000/1.07 + $15,000/1.07^2 + $15,000/1.07^3 + $15,000/1.07^4 + $15,000/1.07^5
Present Value = $15,000 * (1 - (1/1.07)^5) / 0.07
Present Value = $15,000 * 4.10020
Present Value = $61,503.00

Answer c.

Excess Amount deposited = $75,000 - $61,503
Excess Amount deposited = $13,497

Interest rate = 7%
Period = 5 years

Future Value = $13,497 * 1.07^5
Future Value = $18,930.24