Read the following context;

Ms. Helen is working hard every day. She has been saving every month for 5 years an amount per month that represents a total sum of $52,500. Now she is planning her future, but she is still deciding what to do. When she started working, she didnt have a specific plan, but she has always dreamed of having a house in the valley.

Question 1

With her current savings, Ms. Helen is planning to buy the house within the next 9 years. Considering that its market price will rise up to $140,000, and the current market rates are around an annual 8%, calculate each of the following investment options and explain which is more attractive based on those calculations. Please show your workings for each option.

1. Investing all her savings in a product that offers an annual 13% simple interest for 9 years.

SOLVED

2. Investing part of her savings in a product that offers an annual interest of 12% compounded quarterly for 9 years to produce $140,000.

SOLVED

3. Investing all her current savings in a project that will produce annual cashflows of $15,600 for 9 years.

SOLVED

Best option: SOLVED

Question 4

After thinking about the previous plans, Ms. Helen decided that waiting for 9 years was too long. Please, calculate the following two options and indicate which of them would be more interesting. Please show your workings for each option.

1. Putting all her savings in an account for 4 years at an annual interest rate of 8% compounded quarterly, then selling her small flat for $70,000 and summing it up her amount of savings.

2. Putting all her savings in an account for 3 years at an annual interest rate of 9% compounded quarterly, and investing the total savings at that time for 3 more years at a 11% compounded monthly.

Best option: