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Business & Marketing
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Mathematics Questions and Answers
Coursework Instructions:
Please solve the following two questions with detailed explanations.
1.You are expecting twins and want to have $500,000 by the time your two kids go to college. You believe you can earn a return of 7%/year. You have nothing saved up. But you can contribute
$8,000 each year going forward. How many years will it take you to grow your money to
$500,000?
2.Herbilux Botanicals forecasts the following cash flows:
Year Cash flow
1 $ 697,000
2 $ 631,000
3 $ 574,000
4 $ 898,000
5 $9,981,000
If the firm's discount rate is 9%/year, what is the present value of the project?
Coursework Sample Content Preview:
Assignment
Question 1
Solution
To calculate how long it would take to grow a yearly contribution of $8,000 to $500,000, one needs to use the compound interest formula. In this case, however, the formula is limited to the amount because it aims to determine the time it will take and not the total compound interest. Therefore, the formula will be as below.
Formula: A = P (1 + r/n) nt
500,000 = 8,000 (1 + .07/1) t
500,000 = 8,000 (t log 1.07)
500,000 = 8,000t
Ln 500,000/ln 8,000 = t
1.4601 = t
Anti-log 1.4601 = 28
It will take 28 years to save up to $500,000. At the end of every year, the principal amount will increase as the interest is compounded. For instance, at th...
Question 1
Solution
To calculate how long it would take to grow a yearly contribution of $8,000 to $500,000, one needs to use the compound interest formula. In this case, however, the formula is limited to the amount because it aims to determine the time it will take and not the total compound interest. Therefore, the formula will be as below.
Formula: A = P (1 + r/n) nt
500,000 = 8,000 (1 + .07/1) t
500,000 = 8,000 (t log 1.07)
500,000 = 8,000t
Ln 500,000/ln 8,000 = t
1.4601 = t
Anti-log 1.4601 = 28
It will take 28 years to save up to $500,000. At the end of every year, the principal amount will increase as the interest is compounded. For instance, at th...
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