Question content area top Part 1 (Comprehensive problem) You would like to have $ 60,000 in 14 years. To accumulate this amount, you plan to deposit an equal sum in the bank each year that will earn 6 percent interest compounded annually. Your first payment will be made at the end of the year. a. How much must you deposit annually to accumulate this amount? b. If you decide to make a large lump-sum deposit today instead of the annual deposits, how large should this lump-sum deposit be? (Assume you can earn 6 percent on this deposit.) c. At the end of five years, you will receive $ 10,000 and deposit this in the bank toward your goal of $ 60,000 at the end of year 14. In addition to the lump-sum deposit, how much must you deposit in equal annual amounts, beginning in year 1 to reach your goal? (Again, assume you can earn 6 percent on your deposits.) Question content area bottom Part 1 a. How much must you deposit annually to accumulate this amount? $ enter your response here (Round to the nearest cent.) Part 2 b. If you decide to make a large lump-sum deposit today instead of the annual deposits, how large should the lump-sum deposit be? $ enter your response here (Round to the nearest cent.) Part 3 c. If you deposit $ 10,000 received at the end of five years in the bank, what will the amount grow to by the end of year 14? $ enter your response here (Round to the nearest cent.) Part 4 In addition to the lump-sum deposit, how much must you deposit in equal annual amounts, beginning in year 1 to reach your goal? $ enter your response here (Round to the nearest cent.)
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question content area top
Part 1
(Comprehensive problem) You would like to have $
60,000 in
14 years. To accumulate this amount, you plan to deposit an equal sum in the bank each year that will earn
6 percent interest compounded annually. Your first payment will be made at the end of the year.
a. How much must you deposit annually to accumulate this amount?
b. If you decide to make a large lump-sum deposit today instead of the annual deposits, how large should this lump-sum deposit be? (Assume you can earn
6 percent on this deposit.)
c. At the end of five years, you will receive $
10,000 and deposit this in the bank toward your goal of $
60,000 at the end of year
14. In addition to the lump-sum deposit, how much must you deposit in equal annual amounts, beginning in year 1 to reach your goal? (Again, assume you can earn
6 percent on your deposits.)
Question content area bottom
Part 1
a. How much must you deposit annually to accumulate this amount?
$
enter your response here
(Round to the nearest cent.)
Part 2
b. If you decide to make a large lump-sum deposit today instead of the annual deposits, how large should the lump-sum deposit be?
$
enter your response here
(Round to the nearest cent.)
Part 3
c. If you deposit $
10,000 received at the end of five years in the bank, what will the amount grow to by the end of year
14?
$
enter your response here
(Round to the nearest cent.)
Part 4
In addition to the lump-sum deposit, how much must you deposit in equal annual amounts, beginning in year 1 to reach your goal?
$
enter your response here
(Round to the nearest cent.)
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