Time value of money
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1. What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually?
2. You have $42,180.53 in a brokerage account, and you plan to deposit an additional $5,000 at the end of every future year until your account totals $250,000. You expect to earn 12% annually on the account. How many years will it take to reach your goal?
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Solution Summary
The solution explains two questions relating to time value of money.
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1. We use the present value formula
PV = FV/(1+rate)^n where
FV = future value = $5,000
rate = 7%
n = time period = 20 years
PV = 5,000/(1+7%)^20 = $1,292.10
2. In this case are are ...
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