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Time Value of Money and Investment Decision

Andrew Bogut just received a signing bonus of $1,000,000. His plan is to invest this payment in a fund that will earn 8%, compounded annually.

A) If Bogut plans to establish the AB Foundation once the fund grows to $1,999,000, how many years until he can establish the foundation?

B) Instead of investing the entire $1,000,000, Bogut invests $300,000 today and plans to make 9 equal annual investments into the fund beginning one year from today. What amount should the payments be if Bogut plans to establish the $1,999,000 foundation at the end of 9 years?

Solution Preview

Please see attached file.

Note: the abbreviations have the following meanings

FVIF= Future Value Interest Factor
FVIFA= Future Value Interest Factor for an Annuity
They can be read from tables or calculated using the following equations
FVIF( n, r%)= =(1+r%)^n
FVIFA( n, r%)= =[(1+r%)^n -1]/r%

Andrew Bogut just received a signing bonus of $1,000,000.  His plan is to invest this payment ...

Solution Summary

Calculations for the time required to set up a fund given annuity and rate of interest.

$2.19