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Foundations Of Financial Management
Found in: Page 284
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

Question: Beverly Hills started a paper route on January 1. Every three months, she deposits $550 in her bank account, which earns 8 percent annually but is compounded quarterly. Four years later, she used the entire balance in her bank account to invest in an investment at 7 percent annually. How much will she have after three more years?

Answer

The future value of the investment after the three years is $12,809.83.

See the step by step solution

Step by Step Solution

Step 1: Identification of the required information

Payment (PMT) = $550

Periods for quarterly compounding (n1) = 16 (4 years*4 quarters)

Interest Rate for quarterly compounding (i1) = 2% (8%/4)

Re-investment period (n2) = 3

Re-investment rate (i2) = 7%

Step 2: Future value of investment after the three years (FV)

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