1. Assume you have $25,000 in your bank account which you saved as the deposit for your house. However, due to the prevailing market interest rate changes, you feel you cannot service your housing loan. Hence, you planned to invest this in a fixed deposit which pays 6.2% interest, compounded annually and continue living with your parents until you feel comfortable about your financial status.

In terms of time value of money,

(a) define the amount you have in your hand at this point and

(b) the process of accumulating interest on principal amount and interest.

2. Assume you need to keep this in the same fixed deposit until you reach $50,000. Calculate how long you must wait to reach your target.

3. If you need to have $100,000 for a prospective business activity 10 years from now and you have no other savings other than $25,000. What should be the annual interest rate on your investment to achieve your target?