FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Your financial advisor from Bluerock recommends you to invest in one of the plan. You want to compare and verify which of the following is the best investment option.
Investment Plan A: Deposit $125,000 at the beginning and obtain $175,318.97 after 5 years.
Investment Plan B: Deposit $243,000 at the beginning and obtain $319,771.42 after 7 years.
Investment Plan C: Deposit $314,000 at the beginning and obtain $530,496.39 after 9 years.
1. Compute interest rate for all 3 plans. Which investment plan provides you the highest rate?
2. Your advisor updated the investment plan information yesterday. While the interest rate did not change for all 3 plans, future values of each investment are 210382.76, 415702.85, 742694.95, respectively. What would be the investment period for each plan?
3. Your advisor thinks it would be a good investment if you make an investment portfolio using all 3 investment plans suggested. He recommends investing in all 3 plans at year 0 and reinvest the money to risk-free asset whose interest rate is 1% annually when each investment plan is matured after year 5, year 7, and year 9, respectively. For example, you will invest $125,000 for 5 years in Plan A then reinvest $175,318.97 for another 4 years in interest rate of 1%. What would be the future value of this portfolio investment after 9 years? Use interest rates for plans you computed from question 8.
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