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Financial Management Essay

1097 words - 5 pages

P3-1. You have $1,500 to invest today at 7% interest compounded annually.
a. How much will you have accumulated in the account at the end of the following number of years?
1. three years ($1837.56)
2. six years ($2251.09)
3. nine years ($2757.69)
b. Use your findings in part (a) to calculate the amount of interest earned in
1. years 1 to 3 1837.56-1500= $337.56
2. years 4 to 6 2251.10-1837.56= $413.54
3. years 7 to 9 2757.69-2251.10=506.59
c. Compare and contrast your findings in part (b). Explain why the amount of interest earned
increases in each succeeding three-year period.
If you plot time against the money in the account, you would get an ...view middle of the document...

21 times in 15 Yrs

Op III: 12%
Future value FV at Y15 = PV*(1+r)^n = 100*(1+12%)^15 =547
SO In Option 3, He will get 5.47 times in 15 Yrs
So for A: 15 Yrs, Option III is Best .............................Ans (A)

B. 20 yrs
Op1: 1st 5 yr 5%, next 5yr 10% & then next 10Yr 20%
Future value FV at Y5 = PV*(1+r)^n = 100*(1+5%)^5 = 128
FV at Y10 = 128*(1+10%)^5 = 206
FV at Y20 = 206*(1+20%)^10 =1275
SO In Option 1, He will get 12.75 times in 20 Yrs

Op II : 1st 10 yr 10%, next 10yr 15%
Future value FV at Y10 = PV*(1+r)^n = 100*(1+10%)^10 = 259
FV at Y20 = 259*(1+15%)^10 = 1048
SO In Option 2, He will get 10.48 times in 20Yrs

Op III: 12%
Future value FV at Y20 = PV*(1+r)^n = 100*(1+12%)^20 =965
SO In Option 3, He will get 9.65 times in 20 Yrs
So for B: 20 Yrs, Option I is Best ........................................Ans (B)

C. 30 yrs
Op1: 1st 5 yr 5%, next 5yr 10% & then next 20Yr 20%
Future value FV at Y5 = PV*(1+r)^n = 100*(1+5%)^5 = 128
FV at Y10 = 128*(1+10%)^5 = 206
FV at Y30 = 206*(1+20%)^20 =7898
SO In Option 1, He will get 78.98 times in 30 Yrs

Op II : 1st 10 yr 10%, next 20yr 15%
Future value FV at Y10 = PV*(1+r)^n = 100*(1+10%)^10 = 259
FV at Y30 = 259*(1+15%)^20 = 4239
SO In Option 2, He will get 42.39 times in 30 Yrs

Op III: 12%
Future value FV at Y20 = PV*(1+r)^n = 100*(1+12%)^30 = 2996
SO In Option 3, He will get 29.96 times in 30 Yrs
So for C: 30 Yrs, Option I is Best ........................................Ans (C)

P3-4. You have a trust fund that will pay you $1 million exactly ten years from today. You want cash now, so you are considering an opportunity to sell the right to the trust fund to an...

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