FIN 486 Expect Success/uophelp.com FIN 486 Expect Success/uophelp.com | Page 13

Case Single cash flow Interest rate Deposit period (years)
A$

200 5% 20

B 4,500 8 7
C 10,000 9 10
D 25,000 10 12
E 37,000 11 5
F 40,000 12 9
P5–5 Time value You have $1,500 to invest today at 7% interest
compounded annually.
a. Find how much you will have accumulated in the account at the
end of (1) 3 years, (2) 6 years, and (3) 9 years.
b. Use your findings in part a to calculate the amount of interest
earned in (1) the first 3 years (years 1 to 3), (2) the second 3 years
(years 4 to 6), and (3) the third 3 years (years 7 to 9).
c. Compare and contrast your findings in part b. Explain why the
amount of interest earned increases in each succeeding 3-year period.
P5–8 Time value Misty needs to have $15,000 at the end of 5 years to
fulfill her goal of purchasing a small sailboat. She is willing to invest
a lump sum today and leave the money untouched for 5 years until it
grows to $15,000, but she wonders what sort of investment return she
will need to earn to reach her goal. Use your calculator or spreadsheet
to figure out the approximate annually compounded rate of return
needed in each of these cases:
a. Misty can invest $10,200 today.
b. Misty can invest $8,150 today.
c. Misty can invest $7,150 today.