Question

Instructions: a. Match each question with the method listed below that would be used in providing a solution. b. Compute the answer to each of the following questions listed below and on the right.

Method

A. Present Value or Future Value of a Single Sum

B. Future Value of an Ordinary Annuity

C. Future Value of an Annuity Due

D. Present Value of an Ordinary Annuity

E. Present Value of an Annuity Due F. Present Value of a Deferred Annuity

8. At what annually compounded interest rate must Dave invest $25,331 to provide $50,000 at the end of 6 years?

Answer 1

Method

A. Present Value or Future Value of a Single Sum

Solution:

future value of single sum = single sum x FVF(i,n)

$50000 = $25331 x FVF(i, 6)

FVF(i,6) = $50000/$25331

= 1.974

now,

as this future value factor = 1.974 is found in 6 year row and 12% interest column of financial table,

Interest rate = 12%

therefore Dave must invest at 12% annually compounded interest rate.