Question

Calculating Future Values. You have $20,000 you want to invest for the next 40 years. You are offered an investment plan that will pay you 7 percent per year for the next 20 years and 11 percent per year for the last 20 years. How much will you have at the end of the 40 years? Does it matter if the investment plan pays you 11 percent per year for the first 20 years and 7 percent per year for the next 20 years? Why or why not?

Answer 1

(It luteres he time period Calculeting the future velure of Incoment of $20,000, receiving 4. pela interest for next to years and 11%. p. 9 for last 20 years treture Value a prevent Inustment (It luterest Rel). future velue of Iwrestment after next to years - tu= 2o, cool1+0.07) 2 = 77393.69 Interest of lly. p. q in last te doyears, we can be earned on value after 20 years $ 77393.6. 0 after 20 years which is tuture efter value = 77393.69 (1+0.11) 20 = $623972.04 The future velue will be $623972.04

Page No.: → If the and Incestment 77. p. pays 11. pq for first to years in Iest 20 year. tiline velue after first to years = Gowo (tolla - 20, coox 8.06231154 = $ 161246.23 Thon, lad Interest of ty. will be earned an $1612 46.43 tretus velue alth next 20 years = 161246.231 toot) to = 1612 46.23% (3. 8696845) - $623.972.04 So, it does not matter if we eain interest of 71. p., in first year or 117. u first 20 year. As tetur velue under both option will - he $ 623972.04 - • • It will be same becaure u Campaunding, Interest is eained a lülerest in addition to interest a principal. So, 74 or 11%. Interest rate is applied on principel further they earned it on the interest amount which adoted every year. further formule of coupeunding is fu= pulitrio litro so interchanging are rate with another want cherge solution. the

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