Question #1: If $10,000 were invested in a mutual fund that offered an annual interest rate of

7% compounded semi-annually, how much would be in the account after 3 years?

Solution:

nt
Formula: A = P(1 + r/n)

Where:

A = the future amount

P = the principal amount (initial deposit)

r = the annual interest rate (as a decimal)

n = the number of times the interest is compounded per year

t = the number of years

In this case, the principal amount (P) is $10,000, the annual interest rate (r) is 7% (or 0.07 as
a decimal), the interest is compounded semi-annually (n = 2), and the number of years (t) is 3.
Using these values into the formula:

A = 10,000(1 + 0.07/2)(2*3)

A = 10,000(1 + 0.035)6

A = 10,000(1.035)6

A = $12,855.02

Therefore, after 3 years, the amount in the account would be approximately $12,855.02.

Question #2: If you wished to have $1,000,000 in a retirement account at the end of ten years
and the account offers an 8% annual interest rate compounded annually, how much should
you invest in the retirement account now?

Solution:

It can be solved by using Present Value Formula:

P = A / (1 + r)^t
Here:

P = the present value (initial investment)

A = the desired future amount

r = the annual interest rate (as a decimal)

t = the number of years

In this case, the desired future amount (A) is $1,000,000, the annual interest rate (r) is 8% (or
0.08 as a decimal), and the number of years (t) is 10. Plugging these values into the formula:

P = 1,000,000 / (1 + 0.08)10

P = 1,000,000 / (1.08)10

P ≈ $463,193.82

Therefore, you should invest approximately $463,193.82 in the retirement account now to
have $1,000,000 at the end of ten years.

Question # 3: If a person deposits $2,000 in a retirement account at the beginning of each

year for six years and the account pays 6% interest, compounded annually, how much will
they have in their account at the end of six years, immediately following their seventh
deposit?

Solution:

It can be solved by using future value of an ordinary annuity formula:

FV = P * ((1 + r)^n - 1) / r

FV = the future value of the annuity

P = the periodic payment or deposit amount

r = the interest rate per period (as a decimal)

n = the number of periods

In this case, the deposit amount (P) is $2,000, the annual interest rate (r) is 6% (or 0.06 as a
decimal), and the number of periods (n) is 6 since the person makes deposits at the beginning
of each year for six years.

Plugging these values into the formula:

FV = 2,000 * ((1 + 0.06)^6 - 1) / 0.06

FV = 2,000 * (1.06^6 - 1) / 0.06

FV = 2,000 * (1.41851092 - 1) / 0.06

FV = 2,000 * 0.41851092 / 0.06

FV ≈ $14,280.18

Therefore, at the end of six years, immediately following the person's seventh deposit, they
will have approximately $14,280.18 in their retirement account.

Question # 4: A person wants to have $50,000 after 3 years. How much should they deposit
at the beginning of each year if the investment offers a 6% interest rate, compounded
annually?

Solution:

Using formula for periodic payment of an ordinary annuity:

P = A * r / ((1 + r)^n - 1)

P = the periodic payment or deposit amount

A = the desired future amount

r = the interest rate per period (as a decimal)

n = the number of periods

In this case, the desired future amount (A) is $50,000, the annual interest rate (r) is 6% (or
0.06 as a decimal), and the number of periods (n) is 3 since the person wants to achieve the
desired amount after 3 years.
Plugging these values into the formula:

P = 50,000 * 0.06 / ((1 + 0.06)^3 - 1)

P = 50,000 * 0.06 / (1.06^3 - 1)

P = 50,000 * 0.06 / (1.191016 - 1)

P = 50,000 * 0.06 / 0.191016

P ≈ $9,355.18

Therefore, the person should deposit approximately $9,355.18 at the beginning of each year
to have $50,000 after 3 years.

Question # 5: A woman deposits $500,000 in a retirement account that earns 6% interest,

compounded annually. She wants to withdraw all the money in 10 years. How much should
she withdraw each year?

Solution:

Using the formula for the future value of a lump sum:

FV = P * (1 + r)^n

Where:

FV = the future value (initial deposit plus accumulated interest)

P = the initial deposit or account balance

r = the interest rate per period (as a decimal)

n = the number of periods

In this case, the initial deposit (P) is $500,000, the annual interest rate (r) is 6% (or 0.06 as a
decimal), and the number of periods (n) is 10 years.

Plugging these values into the formula:

FV = 500,000 * (1 + 0.06)^10

FV = 500,000 * (1.06)^10

FV ≈ $895,425.69

Therefore, the future value of the account balance after 10 years is approximately
$895,425.69. To determine the annual withdrawal amount evenly over the 10-year period, the
total future value should be divided by the number of years:

Annual Withdrawal Amount = FV / n

Annual Withdrawal Amount ≈ 895,425.69 / 10

Annual Withdrawal Amount ≈ $89,542.57

Therefore, the woman should withdraw approximately $89,542.57 each year for 10 years to
deplete her account balance of $500,000.

Question # 6: A woman wishes to withdraw $50,000 each year for six years from her
investment account. If the account earns 7% interest, compounded annually, how much
should she initially deposit?

Solution:

To solve this, we can use the present value of an ordinary annuity formula:

P = A * ((1 - (1 + r)^(-n)) / r)

Where:

P = the present value or initial deposit

A = the annual withdrawal amount

r = the interest rate per period (as a decimal)

n = the number of periods

In this case, the annual withdrawal amount (A) is $50,000, the annual interest rate (r) is 7%
(or 0.07 as a decimal), and the number of periods (n) is 6 years.
Plugging these values into the formula:

P = 50,000 * ((1 - (1 + 0.07)^(-6)) / 0.07)

P = 50,000 * ((1 - (1.07)^(-6)) / 0.07)

P = 50,000 * ((1 - 0.5084276181) / 0.07)

P = 50,000 * (0.4915723819 / 0.07)

P ≈ $352,249.12

Therefore, the woman should initially deposit approximately $352,249.12 in her investment
account to be able to withdraw $50,000 each year for six years, assuming a 7% annual
interest rate compounded annually.