# Calculating the future values in the given cases

Maria received an inheritance of $750,000 today

a. If she invest it at 8% compounded annually and takes nothing out, how much will she have at the end of 20 years?

b. If she take out $50,000 to but a car and invest the remainder at 8% compounded annually and takes nothing else out, how much will she have at the end of 20 years?

c. If she invest it at 8% compounded annually and takes out $75,000 today and $70,000 at the end of every year thereafter. How much will she have at the end of 20 years?

d. If she invest it at 8% compounded annually and takes out $75,000 today and $70,000 at the end of every year thereafter, when will she get the last payment?

e. What rate of interest would she need to take out $75,000 today and $70,000 at the end of every year for 20 years?

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#### Solution Preview

Please refer attached file for clarity of formulas in MS Excel format.

a. If she invest it at 8% compounded annually and takes nothing out, how much will she have at the end of 20 years?

Inherited amount=T=$750,000

Used amount=U=0

Balance=PV=T-U=$750,000

Annual withdrawl=PMT=0

Rate of interest=RATE=8%

Number of periods=NPER=20

Type of payment=TYPE=0 End of period with drawls

Future Value=FV=?

We can use FV function in MS Excel to get the value at the end of 20 years

Future Value=FV=$3,495,717.86 =FV(D9,D10,-D8,-D7,D11)

b. If she take out $50,000 to but a car and invest the remainder at 8% compounded annually and takes nothing else out, how much will she have at the end of 20 ...

#### Solution Summary

Solution calculates the future values in the given cases with the help of functions in MS Excel.

Present & Future Interest Rates - Future value calculation Without referring to tables or to the preprogrammed function on your financial calculator ...

Future value calculation Without referring to tables or to the preprogrammed function on your financial calculator, use the basic formula for future value along with the given interest rate, i, and the number of periods, n, to calculate the future value interest factor in each of the cases shown in the following table.

Compare the calculated value to the value in Appendix Table A-1.

LG2

Case Interest rate, i Number of periods, n

A 12% 2

B 6% 3

C 9% 2

D 3% 4

Present value calculation Without referring to tables or to the preprogrammed function on your financial calculator, use the basic formula for present value, along with the given opportunity cost, i, and the number of periods, n, to calculate the present value interest factor in each of the cases shown in the accompanying table. Compare the calculated value to the table value.

LG2

Case cost Opportunity Cost, i Number of periods, n

A 2% 4

B 10% 2

C 5% 3

D 13% 2