Share
Explore BrainMass

Time Value of Money

Company makes a deposit of $600,000 on 1/1/01 and a deposit of $400,000 on 1/1/03 into an account that pays interst at 6% compounded semiannually. On 1/1/04, Company transfers the entire balance in the account to a new account that pays interest at 8% compounded quarterly. Company then deposits %500,000 into the account on 1/1/05. On 1/1/07, Company transfers the entire balance in the account to a new account that pays interest at 4% compounded annually. On this same day, Company makes the first of 4 equal annual withdrawals designed to deplete the account

**Compute the
1) amount transfered into the new account on 1/1/04
2) amount of interest earned by Company from 1/1/02 through 1/1/06
3) amount transfered on 1/1/07 to the new account
4) amount of the equal annual withdrawal
5) amount of interest earned during the year of 2007
6) balance in the account on 1/1/08, immediately after makin gthe 2nd equal annual withdrawal
7) amount of decrease in the balance of the account from 1/1/08 to 1/1/09

CLUE MUST MATCH::::The balance in the account at 1/1/07, immediately AFTER the 1st withdrawal, is approximately $1,494,195.

Solution Preview

1) amount transfered into the new account on 1/1/04

The balance would be 600,000 for 3 years at 6% semiannual and 400,000 for 1 year. Using the FVIF table at 3% interest ( for semiannual) and 6 years and 2 years period, we get the factors as 1.194 and 1.061. Mutiply and we get the amount as $1,140,800

2) amount of interest earned by Company from 1/1/02 through 1/1/06

The interest till 1/1/04 is 1,140,800-1,000,000=140,800. For 2 years the intrest on 1,140,800 at 8% quarterly compund is 196,217 ( find the amount using the FIVF table 8 ...

Solution Summary

The solution explains how to use time value of money to calculate the present and future values

$2.19