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Price: $8.00

- From: Business, Cost Accounting
- Posted on: Sat 20 Jun, 2015
- Request id: # 77383
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Suppose you deposits £ 10,000 in a bank account that pays 10 percent interest annually. How much money will be in his account after 5 years?

**Solution**

, Present value (P) = £ 10,000,

Interest rate (k) = 10%

Number of years (n) = 5 years,

Future value (FV_{5}) = ?

We have,

FV_{5 }= PV × (1 + k)^{n }= £ 10,000 × (1.10)^{5 }

= £ 10,000 × 1.6105

**= £ 16,105.10**

What is the present value of a security that promises to pay you £ 5,000 in 20 years? Assume that you can earn 7 percent if you were to invest in other securities of equal risk?

**Solution**

Here, Future value (FV) = £ 5,000

Number of years (n) = 20 years

Interest rate (k) = 7%

Present value (PV) = ?

We have,

PV = = 5000/ (1.07)^{20}

=5000/3.8697 = **£ 1,292.09**

Your parents are planning to retire in 18 years. They currently have £ 250,000, and they would like to have £ 1,000,000 when they retire. What annual rate of interest would they have to earn on their £ 250,000 in order to reach their goal, assuming they save no more money?

**Solution**

Here, Future value (FV) = £ 1,000,000

Present value (PV) = £ 250,000

Time period (n) = 18 years

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