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The dilemma of investment is quite indispensable from the view point either for a company or the world as a whole. When the name of investment and savings comes on the screen then the stance of future value and present value automatically comes. The concept of future value can be understand with this fact that, “A dollar earned today has more worth as compared if it is earned after some months.” There are several factors which influence the FV and PV like the prevailing inflation and interest rates of the country. For the first question, the court has to submit $110,000 (11,000*10) now and after 10 years the whole amount will be end provided that the court pays annual money to Joe for the settlement.
Now comes to the second question which pertains to rate of return.
|
Rate of Return (ROR) |
|||
|
Initial Outlay |
|
|
$33,000 |
|
Years to Maturity (YTM) |
|
|
7 |
|
Interest Rate |
|
|
7% |
|
Future Value |
|
|
? |
|
Fv = PV (1+i)n |
|||
|
Future Value |
|
|
$52991 |
In this scenario the actual YTM was 8 years but we have been asked to calculate the ROR by consider 7 years as YTM. So after 7 years Mary will receive $52991 on her initial investment of $33,000 showing an increase of 61% in just 7 years. Now comes to the next question in which we have to calculate the return after one year and the accumulated number of years in which we will completely net off our appetite of buying a furniture for $10,000.
|
Rate of Return (ROR) |
|||
|
Initial Outlay |
|
|
1,500 |
|
Years to Maturity (YTM) |
|
|
1 |
|
Interest Rate |
|
|
6% |
|
Future Value |
|
|
? |
|
Fv = PV (1+i)^n |
|||
|
Future Value |
|
|
$1590 |
Table above shows that Joe and Mary will receive $1590 after one year and they have to wait 6.5 years to accumulate the sum of $10,000 to purchase furniture provided that the interest rate is 6%.