Fi 360 Essay example

1871 Words Sep 21st, 2012 8 Pages
3-1
A.
1. 3 YEARS 1837.56 1500X (1+.07) third power = 1837.56 2. 6 YEARS 2251.09 1500x(1.07)sixth power=2251.09 3. 9 YEARS 2757.68 1500(1.07) ninth power=2757.68
B.
1. 1st year 105, 2nd year 112.35, 3rd year 120.21 for a total of 337.56
For the first year you have 1500 x .07 which equals 105. and the .07 in all the equations below is because it is 7% interest.
1500 X .07= 105
Since it is compound interest then for year two I add the 105 to 1500 which equals 1605.
105+1500=1605
Then you must calculate the interest for year two you multiply 1605 by .07 which equals 112.35
1605 X .07 = 112.35 and again it is compound interest so you add the 112.35 to 1605 which equals 1717.35
112.35 + 1605=
…show more content…
The amount of interest increases because it is compound interest.

3-2 I used the value of 500, 000 for the lump sum invested A. 15 years
Option 1
FV= 500000 x (1 + .05) fifth power .05 because it is 5%, and fifth power because the period for the 5% is only five years
500000 x (1+.05) fifth power =638,140.78125
500000 x 1.2762815625= 638,140.78 (rounded to the penny for future problem)
Then the next five years for option A is at 10% return so I use
638,140.78 x (1 + .1) fifth power= 1,027,732.1075978
638,140.78 x 1.61051=1,027,732.10
The final five years will be at 20%
1027732.10 x (1 + .2) fifth power =2,557,326.339072
1027732.10 X 2.48832= 2,557,326.33
Option 2 offers a 10% on the first ten years so I calculate that by
500,000 x (1+ .1) tenth power
500,000 x 2.5937424601= 1, 296,871.23 from after ten years option two offers 15% so we need 15% for five years to figure out the return at 15 years for option 2.
1,296, 871.23 x (1+.15) fifth power
1,296,871.23 x 2.0113571875= 2,608,471.26
Option 3 has a 12% constant return
500,000 x (1+ .12)

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