A firm has $100,000 in excess cash and wants to invest the cash in a three-year...
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A firm has $100,000 in excess cash and wants to invest the cash in a three-year bank certificate of deposit (CD). where, at maturity, the buyer receives the principal plus accumulated interest. Questions: a. What is the future value of the CD if it pays 2 percent interest compounded annually? 1 percent? 3 percent? b. Big Bank offer a CD with 3 percent nominal (stated) interest that is compounded monthly. What is effective annual rate on this CD? What will the value be in three years if the $100,000 is invested in this CD? 2. A thinks CPSC's current computer hardware and software system will need to be replaced in three years at an estimated cost of $500,000. Questions: a. What amount must be currently invested in a CD paying 3 percent annual interest to accumulate to $500,000 in three years? b. What annual interest rate will allow a current investment of $450,000 to accumulate to $500,000 after three years? c. Another option for accumulating $500,000 in three years is to make three equal annual payments into a savings caccount earing 4 percent interst, with the first payment being made immediately. What type of annuity is this? What is the amount of the equal annual payments? A firm has $100,000 in excess cash and wants to invest the cash in a three-year bank certificate of deposit (CD). where, at maturity, the buyer receives the principal plus accumulated interest. Questions: a. What is the future value of the CD if it pays 2 percent interest compounded annually? 1 percent? 3 percent? b. Big Bank offer a CD with 3 percent nominal (stated) interest that is compounded monthly. What is effective annual rate on this CD? What will the value be in three years if the $100,000 is invested in this CD? 2. A thinks CPSC's current computer hardware and software system will need to be replaced in three years at an estimated cost of $500,000. Questions: a. What amount must be currently invested in a CD paying 3 percent annual interest to accumulate to $500,000 in three years? b. What annual interest rate will allow a current investment of $450,000 to accumulate to $500,000 after three years? c. Another option for accumulating $500,000 in three years is to make three equal annual payments into a savings caccount earing 4 percent interst, with the first payment being made immediately. What type of annuity is this? What is the amount of the equal annual payments?
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Answer rating: 100% (QA)
To calculate the future value of a CD we can use the formula for compound interest Future Value FV Principal P 1 Interest Rate rn where P Principal in... View the full answer
Related Book For
South-Western Federal Taxation 2018 Comprehensive
ISBN: 9781337386005
41st Edition
Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young
Posted Date:
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