Math Help!

You inherit $220,000 and decide to invest it for 28 days compounded daily at 6% annual interest. After the 28 days, you are going to invest your new found money in a startup business.
How much interest is earned on this investment?
You can either use the Future Value formula or Table 13-2

Future Value Formula
FV = P(1 + R)N
Reminder: 6% is the annual rate. You need to use the period interest rate.
R = Interest Rate per period (day). (You are dividing by 365.)

Table 13-2: Compound Interest on $100, Compounded Daily (365 days) (Exact Time, Exact Interest Basis)
Reminder - The Table is for compound interest on each $100 so you need to divide the inheritance by 100 and multiply that times the factor from the table.

How much money will you have to invest in the startup after the 28 days?
If you used the Future Value Formula, write down your answer from Part 3a.

If you used Table 13-2, you need to add the inheritance amount to the interest found in Part 3a.

Question 4: (10 Points)

How much money must be invested into an account paying 4% annually, compounded annually, to have $600,000 in 25 years when I retire?

Calculate the PV (Present Value) using the “Present Value of $1.00” table in your textbook.
Remember: Use Table 13-3: Present Value. To use the Table, you need the Number of Periods and the Interest Rate per Period.
Number of Periods = Number of Years
Interest Rate per Period – Compounding annually means once per year so you are dividing the interest rate by 1. That means the interest rate per period stays at 4%.
Find the Present Value Factor from the chart and multiply it times the given Future Value

Calculate the PV (Present Value) using the formula: PV = FV / (1 +R)N
Reminder: Always show work. You can do this by stating the values that you are substituting into the formula.

Present Value Formula


Show the following:
Substitute the values into the given formula
Calculate answer

How much interest did you earn over the life of the investment?
You can use either the result from Part 4a or Part 4b for your calculations, since they are slightly different. Show your work.
Asked Mar 07, 2017

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