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Future & Present Values (401k account, Electo Corporation)

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1. You have just made your first $4,000 annual contribution to your 401k account. Assuming you earn 8% on your money and invest for 20 years (twenty annual $4,000 contributions), to what value will your account grow after 20 years?

2. Use the same numbers as in question 1. Calculate your account value if you invest in 30 years.

3. Investor Harry owns a 5 year $1,000 bond with a 5% coupon that pays interest once per year. If the yield to maturity of similar bonds is currently 8%, what is Harry's bond worth today?

4. An analyst is forecasting dividends for Electo Corp over the next 4 years as follows: $1.00 (y1); $1.20 (y2); $1.35(y3); $1.50 (y4). In addition, the analyst expects that REC shares could be sold for $63.50 four years from today. If the required return on the stock is 10%, what is the REC stock worth today?

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Solution Summary

This solution uses financial calculator to calculator present value and future value for these financial word problems and a step-by-step calculation of finding a stock's value today. Here are the word problems:

1. You have just made your first $4,000 annual contribution to your 401k account. Assuming you earn 8% on your money and invest for 20 years (twenty annual $4,000 contributions), to what value will your account grow after 20 years?

2. Use the same numbers as in question 1. Calculate your account value if you invest in 30 years.

3. Investor Harry owns a 5 year $1,000 bond with a 5% coupon that pays interest once per year. If the yield to maturity of similar bonds is currently 8%, what is Harry's bond worth today?

4. An analyst is forecasting dividends for Electo Corp over the next 4 years as follows: $1.00 (y1); $1.20 (y2); $1.35(y3); $1.50 (y4). In addition, the analyst expects that REC shares could be sold for $63.50 four years from today. If the required return on the stock is 10%, what is the REC stock worth today?

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1. You have just made your first $4,000 annual contribution to your 401k account. Assuming you earn 8% on your money and invest for 20 years (twenty annual $4,000 contributions), to what value will your account grow after 20 years?

Here, we are looking for the future value.
Using financial calculator, enter Number of years (N) = 20, Annual ...

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