Quick question (1 Viewer)

[Rayanaldo]

Kelly invested $7600 at 8% p.a compounded quartely for 3 years.
a.) What is the final amount of her investment?
b.) Would she have achieved a better financial result if she chose an annuity of $760 per quarter for 3 years at the same rate?

I was going well with doing these from my textbook, but i cant work this one out.

Can any of you guys show me how to work out the answers to these questions?

Cheers.

 

[Wilmo]

Rate = 8% / 4 (to get quarterly) = 2%
Time = 3 x 4 (gets you to quaters) = 12

Question (a) is a lump sum question, so you want to do present value formula.
Question (b) is a payment per period so you'd do future value

Therefore:

(a) N = 7600 x ( 1.02^12 - 1) / (0.02 x 1.02^12)

(b) A = 760 x ( 1.02^12 - 1) / (0.02)

then A - N = $ ????

If the number is positive, then the second option is better... if negative, its worse

 

[Rayanaldo]

I got b.) correct but i can't get a.)

For a.) I typed it in correctly in my calculator and got 80372.59, but in the back of my textbook, the answer is $9639.

Am i doing something wrong?

 

[Wilmo]

well.... unless i misread the question, I find it highly odd that you got (b) lol. Considering you need the N from (a) to fully work it out.

I honestly dont know... its what I would have done to work it out... maybe try doing it as a future value anyway... that may be how they got their answer.

And if it doesnt work out, ask your teacher.

 

[Rayanaldo]

Originally posted by Wilmo
well.... unless i misread the question, I find it highly odd that you got (b) lol. Considering you need the N from (a) to fully work it out.

I honestly dont know... its what I would have done to work it out... maybe try doing it as a future value anyway... that may be how they got their answer.

And if it doesnt work out, ask your teacher.

I was doing it now and i used this formula:

A = P(1+r)^n

From using that forumla, i got $9639, the answer in the back of the book.

 

[dark`secrets]

if you are trying to get the answer of $9639 then you are correct by using the compound interest formula

 

[Misturi]

Maybe the back of the book is wrong. What text book are you using and what question is it (pg number etc)?

 

[Wilmo]

Ha... i didnt even think of the compund interest formula... Im so glad i didnt get one of them in my test, i might have been thrown off.

Sorry for the misdirecting you in what to do