You will make the following investments for a trip around the world: $2,600 today, $4,000 at the end of year two, and $1500 at the end of year five. (A) How much will you have in six years if you can earn 4.2% on your investments? (B) What equivalent amount could you put away today as a lump sum and have the same amount in six years?

Question

Business

Leah Martinez

14 May, 00:24

You will make the following investments for a trip around the world: $2,600 today, $4,000 at the end of year two, and $1500 at the end of year five. (A) How much will you have in six years if you can earn 4.2% on your investments? (B) What equivalent amount could you put away today as a lump sum and have the same amount in six years?

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Answers (1)

Know the Answer?

Laylah Klein · Answer 1

a) $9606.53

b) $7505.16

Explanation:

Giving the following information:

Investment

$2,600 year 0

$4,000 at the end of year two

$1500 at the end of year five.

i=0,42

A) FV=2600 * (1,042^6) = $3328

FV=4000 * (1,042^4) = $4715,53

FV=1500 * (1,042^1) = $1563

Total = $9606.53

B) We need to find the present value of $9606.53

PV = FV/[ (1+i) ^n]

PV = 9606.53/1,042^6 = $7505.16