Question 1. If you invest $7000 now, and your investment pays 12% per annum. Required:
a. In term of time value of money, what does the amount of $7000 represent?
b. What is the interest rate 12% called?
c. How much will you have in three years if the rate is compounded annually (to the nearest dollar)?
d. How much will you have in three years if the rate is compounded semiannually, quarterly, monthly and daily (to the nearest dollar)?
Question 2. You have been told that you need $25 500 today in order to have $100 000 when you retire 35 years from now. Required:
a. What rate of interest was used in the present value computation if assuming interest is compounded annually?
b. If you wish to retire in 25 years with the same $100 000 and same rate of return, how much money would you need to invest now?
c. If you wish to retire with $150 000 and the rate of return is 5%, how long will you need to wait before you can retire?
Question 3. You plan to invest your saving of $10 000 in the next 15 years with two phases: in the first 10 years you invest it in an asset that pay an interest of
7 % compounding semi-annually. In the last 5 year you invest the total amount accumulated in the first 10 year in another asset that pays you interest of 9% compounding annually. Required:
a. What is the effective annual interest rate (EAR) you will get for you investment in the first 10 years?
b. How much money you would accumulate at the end of the first 10 years?
c. How much money would you have at the end of 15 years?
d. If you wish to have $50 000 at the end of 15 years, how much should you invest now?
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