What Would Be The Value Of A Savings Account Started With ✓ Solved

What would be the value of a savings account started with

What would be the value of a savings account started with $1090, earning 6 percent (compounded annually) after 3 years? Use the appropriate Time Value of Money table (Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, OR Exhibit 1-D) (Round your answer to the nearest whole number. Do not include the comma, period, and "$" sign in your response.)

Brenda Young desires to have $17050 saved after 15 years from now for her kid's college fund. If she will earn 2 percent (compounded annually) on her money, what amount should she deposit now? Use the appropriate Time Value of Money table (Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, OR Exhibit 1-D) (Round your answer to the nearest whole number. Do not include the comma, period, and "$" sign in your response.)

What amount would you have if you deposited $5400 a year for 11 years at 7 percent (compounded annually)? Use the appropriate Time Value of Money table (Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, OR Exhibit 1-D) (Round your answer to the nearest whole number. Do not include the comma, period, and "$" sign in your response.)

What would be the net annual cost of the following checking account? • Monthly fee : $11.55 • Processing fee: $0.40 per check • Checks written: Average of 55 a month Round your answer to the nearest whole number. Do not include the comma, period, and "$" sign in your response.

A few years ago, Michael Tucker purchased a home for $126000. Today the home is worth $158000. His remaining mortgage balance is $61000. Assuming Michael can borrow up to 64 percent of the market value of his home, what is the maximum amount he can borrow? Round your answer to the nearest whole number. Do not include the comma, period, and "$" sign in your response.

Kim Lee is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Kim is living at home and works in a shoe store, earning a gross income of $2150 per month. Her employer deducts a total of $150 for taxes from her monthly pay. Kim also pays $60 on credit card debt each month. The loan she needs for chiropractic school will cost an additional $140 per month. Calculate her debt payments-to-income ratio with college loan. Don't forget to convert your answer to a percentage. Make sure to include zeros and the period in your answer. Round your answer to 2 decimal places. i.e. 20.12, 31.89, 10.02, 8.09, etc. Do not include the "%" sign in your answer.

Kim Lee is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Kim is living at home and works in a shoe store, earning a gross income of $1910 per month. Her employer deducts a total of $230 for taxes from her monthly pay. Kim also pays $85 on credit card debt each month. The loan she needs for chiropractic school will cost an additional $170 per month. Calculate her debt payments-to-income ratio without college loan. Remember to convert your answer to a percentage! Make sure to include zeros and the period in your answer. Round your answer to 2 decimal places. i.e. 13.55, 21.89, 8.21, 10.99, etc. Do not include the "%" sign in your answer.

Dorothy lacks cash to pay for a $720 dishwasher. She could buy it from the store on credit by making 12 monthly payments of $65. The total cost would then be $780. Instead, Dorothy decides to deposit $60 a month in the bank until she has saved enough money to pay cash for the dishwasher. One year later, she has saved $770.40—$720 in deposits plus interest. When she goes back to the store, she finds the dishwasher now costs $792.00. Its price has gone up 10 percent, the current rate of inflation. From the financial standpoint, was postponing her purchase a good trade-off for Dorothy?

Paper For Above Instructions

To determine the future value of a savings account after a specified period, we can use the formula for compound interest, which is:

FV = P (1 + r)^n

Where:

  • FV = Future Value
  • P = Principal amount (initial investment)
  • r = annual interest rate (decimal)
  • n = number of years the money is invested or borrowed

1. For the first scenario, starting with $1090 at an interest rate of 6 percent compounded annually over 3 years:

Using the formula, we have:

FV = 1090 (1 + 0.06)^3 = 1090 (1.191016) = 1299.41

Rounding to the nearest whole number, the future value after 3 years is 1299.

2. Next, we need to find out how much Brenda Young should deposit today to achieve a savings goal of $17050 in 15 years with an interest rate of 2 percent compounded annually. We can use the present value formula:

PV = FV / (1 + r)^n

Where:

  • PV = Present Value (amount to deposit now)

So:

PV = 17050 / (1 + 0.02)^15 = 17050 / (1.349353) = 12644.35

Rounding to the nearest whole number, Brenda needs to deposit 12644 today.

3. For the third calculation, if $5400 is deposited annually for 11 years at 7 percent compounded annually, we need to calculate the future value of a series of cash flows (an annuity). The formula is:

FV = Pmt * [(1 + r)^n - 1] / r

Where:

  • Pmt = annuity payment ($5400)

Thus:

FV = 5400 [(1 + 0.07)^11 - 1] / 0.07 = 5400 [2.252191 - 1] / 0.07 = 5400 (2.252191/0.07) = 5400 32.173015 = 17373.72

Rounding to the nearest whole number, the amount accumulated is 17374.

4. To calculate the net annual cost of a checking account with a monthly fee of $11.55, processing fee of $0.40 per check, and an average of 55 checks written per month:

Annual cost = (Monthly fee 12) + (Processing fee Checks written per month * 12)

= (11.55 12) + (0.40 55 * 12) = 138.60 + 264 = 402.60

Rounding to the nearest whole number, the annual cost is 403.

5. Michael Tucker’s maximum borrowing amount can be calculated based on his home’s market value:

Maximum Loan = Market Value of Home 0.64 = 158000 0.64 = 101120

After subtracting the remaining mortgage balance:

Maximum amount he can borrow = 101120 - 61000 = 40120

Rounding to the nearest whole number, the maximum amount is 40120.

6. For Kim Lee’s debt payments-to-income ratio with the school loan:

Monthly income: $2150 - $150 (taxes) = $2000

Total Debt Payments = $60 (credit card debt) + $140 (loans) = $200

Debt Payment Ratio = (Total Debt Payments / Income) 100 = (200 / 2000) 100 = 10

Rounding to two decimal places, the ratio is 10.00.

7. For Kim’s debt payment-to-income ratio without the college loan:

Using her revised gross income of $1910 and deducting $230 for taxes, her net income becomes: $1910 - $230 = $1680.

Total Debt Payments (without the school loan) = $85 (credit card debt) = $85

Debt Payment Ratio = (Total Debt Payments / Income) 100 = (85 / 1680) 100 = 5.06

Rounding to two decimal places gives 5.06.

8. Finally, assessing Dorothy's decision to postpone her purchase. She saved $770.40 but now faces a dishwasher priced at $792 after inflation increase. Adjusting for inflation shows:

Original cost = $720 and later cost = $792 (which is also a 10% increase). Therefore, it was not a wise financial decision for Dorothy to wait since the price went up.

In conclusion, we examined various savings and loan scenarios utilizing time value of money calculations as well as understanding expenses in bank accounts and loan repayment limits.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2020). Financial Management: Theory & Practice. Cengage Learning.
  • Gitman, L. J., & Zutter, C. J. (2019). Principles of Managerial Finance. Pearson.
  • Weston, J. F., & Copeland, T. E. (2021). Managerial Finance. Cengage Learning.
  • Kenton, W. (2022). Time Value of Money (TVM). Investopedia.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance. McGraw-Hill Education.
  • Van Horne, J. C., & Wachowicz, J. M. (2019). Fundamentals of Financial Management. Pearson.
  • McLaney, E. J., & Atrill, P. (2021). Financial Accounting. Pearson.
  • Higgins, R. C. (2020). Analysis for Financial Management. McGraw-Hill Education.
  • Graham, B., & Dodd, D. L. (2020). Security Analysis. McGraw-Hill Education.
  • Gitman, L. J., & Billingsley, R. S. (2022). Financial Planning: Theory and Practice. Pearson.

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