Willie invested $6,000 at 5% annual interest, and left the money invested without withdrawing any of the interest for 12 years. At the end of the 12 years, Willie withdrew the accumulated amount of money. (a) What amount did Willie withdraw, assuming the investment earns simple interest? (b) What amount did Willie withdraw, assuming the investment earns interest compounded annually? Megan Company earns 6% on an investment that will return $450,000 8 years from now. What is the amount Megan should invest now, assuming the 6% will be constant, to have $450,000 in 8 years? TIP: The present value formula will be easiest (if that formula makes sense). You can also use the future value and "play" with numbers to see what makes it work. Finally, you could also set up a small spreadsheet to use numbers to get the desired math to work. Reach out if you are struggling.
Willie invested $6,000 at 5% annual interest, and left the money invested without withdrawing any of the interest for 12 years. At the end of the 12 years, Willie withdrew the accumulated amount of money. (a) What amount did Willie withdraw, assuming the investment earns simple interest? (b) What amount did Willie withdraw, assuming the investment earns interest compounded annually? Megan Company earns 6% on an investment that will return $450,000 8 years from now. What is the amount Megan should invest now, assuming the 6% will be constant, to have $450,000 in 8 years? TIP: The present value formula will be easiest (if that formula makes sense). You can also use the future value and "play" with numbers to see what makes it work. Finally, you could also set up a small spreadsheet to use numbers to get the desired math to work. Reach out if you are struggling.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:TO DO: Answer the questions below related to if simple interest versus compound interest were at play.
Willie invested $6,000 at 5% annual interest, and left the money invested without withdrawing any of the interest for 12 years.
At the end of the 12 years, Willie withdrew the accumulated amount of money.
(a) What amount did Willie withdraw, assuming the investment earns simple interest?
(b) What amount did Willie withdraw, assuming the investment earns interest compounded annually?
Megan Company earns 6% on an investment that will return $450,000 8 years from now.
What is the amount Megan should invest now, assuming the 6% will be constant, to have $450,000 in 8 years?
TIP: The present value formula will be easiest (if that formula makes sense). You can also use the
future value and "play" with numbers to see what makes it work. Finally, you could also set up a
small spreadsheet to use numbers to get the desired math to work. Reach out if you are struggling.
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