Question

1. Pam, when she turned 25, made an investment of $20,000 at an interest rate of 6.5% compounded semi-annually. Now that she is 50 years old, how much is the investment worth now. A) $53,250 B) $44,491.96 C) $32,500 D) $98,976.71 2. For the cash flows shown table below, evaluate the unknown value, X for an interest rate of 6% compounded annually. Year I 0 I 1 I 2 20,000 -5,000 -10,000 61 X Cash Flow in $ A) $5,000 B) -$9,054 C) $6,377 D) $8,252

Answer 1

1. Ans: $98,976.71

Explanation:

Here, P = 20,000

          i = 6.5% / 2 = 3.25%

          n = 25 * 2 = 50

FV = P(1 + i)ⁿ

      = 20,000(1 + 0.0325)⁵⁰

      = $98,976.71

Thus, option [D] is correct answer.