. Richard Simons is selling his house. He has a choice of taking $125,000 today or $135,000 in 6
months. If he takes the money today, he can invest it at Valley Bank at 5% interest compounded monthly.
c. (1 point) How much would the 125,000 be worth in six months if invested?
125000*.05 = $ 6250
131250*.05 = $ 6562.50
137812.50*.05 =$ 6890.625
144703.125*.05=$ 7235.15625
151938.28125*.05=$ 7596.9140625
159535.1953125*.05=$ 151,938.33125
$151,938.33
d. (1 point) Which offer should he take? Why? How much more money does he gain in
making this choice?
He should take the deal in 6 months. He will gain $ 26938.33 more in making this choice.
the interest rate is 5% per annum compounded monthly
that means you get .05/12 each month, NOT .05
I did this question for you , look back to see the solution.
Your solution and answers above make absolutely no sense.
To calculate how much $125,000 would be worth in six months if invested at Valley Bank at 5% interest compounded monthly, you can use the formula for compound interest. The formula is:
A = P * (1 + r/n)^(n*t)
Where:
A = the future value of the investment
P = the principal amount (in this case, $125,000)
r = annual interest rate (5% or 0.05)
n = number of times the interest is compounded per year (since it's compounded monthly, n = 12)
t = time, in years (6 months is half a year, so t = 0.5)
Plugging in the values:
A = 125000 * (1 + 0.05/12)^(12*0.5)
A = $151,938.33
So, if Richard invests $125,000 at Valley Bank at 5% interest compounded monthly, it would be worth $151,938.33 in six months.
Now, to determine which offer Richard should take, let's compare the two options:
Option 1: Take $125,000 today
Option 2: Take $135,000 in six months (worth $151,938.33 if invested)
Richard should take option 2, as it will give him more money. By choosing option 2, Richard would gain $151,938.33 - $125,000 = $26,938.33 more.
Therefore, Richard should choose to take $135,000 in six months, as he would gain an additional $26,938.33 compared to taking $125,000 today.