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1- How much must you invest at 11% interest in order to see your investment grow to...

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Finance

1-

How much must you invest at 11% interest in order to see yourinvestment grow to $31,000 in 13 years? Use Appendix B to calculatethe answer.

  • $7,399

  • none of these

  • $7,364

  • $7,998

2-

Sharon Smith will receive $1.03 million in 25 years. Thediscount rate is 10%. As an alternative, she can receive $94,760today. Which should she choose? Use Appendix B to calculate theanswer.

  • $94,760 today.

  • the $1.03 million dollars in 25 years.

  • she should be indifferent.

  • need more information.

Answer & Explanation Solved by verified expert
4.5 Ratings (664 Votes)

1) $    7,998
Working:
Present value = Future value x Present value of 1
= $             31,000 x         0.258
= $                7,998
Working:
Present value of 1 = (1+i)^-n Where,
= (1+0.11)^-13 i 11%
=                    0.258 n 13
2) she should be indifferent.
Working:
Present value of $ 1.03 million in 25 years = Future value x Present value of 1
= $       10,30,000 x 0.092
= $             94,760
Present value of 1 = (1+i)^-n Where,
= (1+0.10)^-25 i 10%
=                    0.092 n 25

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Transcribed Image Text

1-How much must you invest at 11% interest in order to see yourinvestment grow to $31,000 in 13 years? Use Appendix B to calculatethe answer.$7,399none of these$7,364$7,9982-Sharon Smith will receive $1.03 million in 25 years. Thediscount rate is 10%. As an alternative, she can receive $94,760today. Which should she choose? Use Appendix B to calculate theanswer.$94,760 today.the $1.03 million dollars in 25 years.she should be indifferent.need more information.

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