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Problem 1 biyo Phillip Roehl, owner of the Roehl Hotel, desires to know how much each investment will grow to at the end of its
Problem 1 biyo Phillip Roehl, owner of the Roehl Hotel, desires to know how much each investment will grow to at the end of its life. The investments are as follows: 1. $10,000 invested today for ten years, with annual interest of 8 percent compounded annually 2. $5,000 invested today for five years, earning annual interest of 10 percent compounded semi-annually 3. $8,000 invested in one year for four years, earning annual interest of 12 percent com- pounded quarterly Problem 1(15 points) For each of the three scenarios, answers the following questions 1. What is the amount invested? 2. What are the number of periods? HINT: Annual compounding the number of periods - the number of years. Semi-annual compounding: the number of periods = the number of years x 2. Quarterly compounding: the number of periods - the number of years x 4. 3. What is the effective interest rate? HINT: Annual compounding: the effective interest rate the annual interest rate. Semi-annual compounding: the effective interest rate = the annual interest rate/2. o Quarterly compounding: the effective interest rate = the annual interest rate/4. 4. What is the Future Value Factor? HINT: use Exhibit 2. The Table of Future Value Factors for a Single Cash Flow on page 639. along with the number of periods and the effective Interest rate, to find the FVF. DO NOT round this number, use all four decimal places listed in the table. 5. What is the future amount of the investment? HINT: multiply the amount invested by the Future Value Factor
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