Ok, this is my first week in this finance class. It's week 1 of 5. Anyway, I've been going over the assignments for most of the week now, and I'm fuzzy on if I'm reading the assignment right, or if my brain is just doing overtime and I'm making things more complicated than I should. I've attempted the first two parts of the assignment, though I'm not sure I did them right, and I was hoping that someone who is better in math, and has a better grasp on finance than me, can tell if I'm doing this right. Ok, so here is the first part of the first assignment:
After a protracted legal case, Joe won a settlement that will pay him $11,000 each year at the end of the year for the next ten years. If the market interest rates are currently 5%, exactly how much should the court invest today, assuming end of year payments, so there will be nothing left in the account after the final payment is made?
Ok, at first I thought to take that initial $11,000 and times it by 5%. That gives me $11,500. Now, do I take that $11,500 and times THAT by 5%, and then continue on like this for the full ten years, at which time I have calculated a total of $145,274.71, or do I just take each year as if it's a new $11,000 and tack on the 5% so that at the end I have $115,500? Was I right to tack on the compounded interest?
Next, for the second part of the first assignment, here is the problem:
Mary just deposited $33,000 in an account paying 7% interest. She plans to leave the money in this account for eight years. How much will she have in the account at the end of the seventh year?
My question here is, do I add that 7% on to the first year, even though I don't know what time of year she deposited the money? And do I tack it on at the end? Right now, the answer I am sitting with is $49,312.14, and that's assuming that I don't have to add the 7% on to the first year. If I do, clearly I'll have to recalculate the entire total. Am I thinking too hard on this? Am I anywhere in the right ballpark? I'm planning to e-mail my teacher on this too, but it could be days before I hear back, and I have 4 other assignments to finish. Any advice would be MUCH appreciated. Thanks!
After a protracted legal case, Joe won a settlement that will pay him $11,000 each year at the end of the year for the next ten years. If the market interest rates are currently 5%, exactly how much should the court invest today, assuming end of year payments, so there will be nothing left in the account after the final payment is made?
Ok, at first I thought to take that initial $11,000 and times it by 5%. That gives me $11,500. Now, do I take that $11,500 and times THAT by 5%, and then continue on like this for the full ten years, at which time I have calculated a total of $145,274.71, or do I just take each year as if it's a new $11,000 and tack on the 5% so that at the end I have $115,500? Was I right to tack on the compounded interest?
Next, for the second part of the first assignment, here is the problem:
Mary just deposited $33,000 in an account paying 7% interest. She plans to leave the money in this account for eight years. How much will she have in the account at the end of the seventh year?
My question here is, do I add that 7% on to the first year, even though I don't know what time of year she deposited the money? And do I tack it on at the end? Right now, the answer I am sitting with is $49,312.14, and that's assuming that I don't have to add the 7% on to the first year. If I do, clearly I'll have to recalculate the entire total. Am I thinking too hard on this? Am I anywhere in the right ballpark? I'm planning to e-mail my teacher on this too, but it could be days before I hear back, and I have 4 other assignments to finish. Any advice would be MUCH appreciated. Thanks!
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