FINANCIAL ACCOUNTING:TOOLS FOR BUSINESS
19th Edition
ISBN: 9781119493624
Author: Kimmel
Publisher: WILEY
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Chapter AG, Problem G.1BE
To determine
Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The following formula is used to calculate the future value of an amount:
To Determine: The accumulated amounts withdraw by J.
To Calculate: The future value of a single amount (if the interest compounded annually).
Expert Solution & Answer
Explanation of Solution
Step 1: Calculate the amount of simple interest.
Step 2: Calculate the accumulated amount.
Therefore, the accumulated amount withdraw by J is $9,600.
J invested $6,000 at 5% interest rate for 12 years. He withdrew the accumulated amount of money after 12 years. In that, he earned the interest amount of $3,600 from the investment (using simple interest method). Therefore, the accumulated amount withdraw by J is $9,600.
The future value of the amount is determined as follows:
J invested $6,000 at 5% interest rate for 12 years. If the interest amount compounded annually then the future value of a 12th year at 5% interest would be 1.79586 (Refer table 1 for the future value of money). Therefore, the amount earn by J is $10.775.16. Therefore, the future value of an amount is $10.775.16.
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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.
David Jackson invests $40,200 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, David withdraws the accumulated amount of money.
Compute the amount David would withdraw assuming the investment earns simple interest.
Steven Jackson invests $57,000 at 10% annual interest, leaving the money invested without withdrawing any of the interest for 10 years. At the end of the 10 years, Steven withdraws the accumulated amount of money.
(a) Compute the amount Steven would withdraw assuming the investment earns simple interest.(b) Compute the amount Steven would withdraw assuming the investment earns interest compounded annually.(c) Compute the amount Steven would withdraw assuming the investment earns interest compounded semiannually.
Chapter AG Solutions
FINANCIAL ACCOUNTING:TOOLS FOR BUSINESS
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