Kate Eden received a graduation present of $5,000 that she is planning on investing in a mutual fund that earns 6.00 percent each year. How much money can she collect in three years
5900
John Friedman is in the 40 percent personal tax bracket. He is considering investing in HCA bonds that carry a 12 percent interest rate.
(a). What is his after-tax yield (interest rate) on the bonds?
To calculate how much money Kate can collect in three years with a 6% annual return on her investment, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the final amount
P = the initial principal (investment)
r = annual interest rate (expressed as a decimal)
n = number of times interest is compounded per year
t = number of years
In this case, Kate's initial principal (investment) is $5,000, the annual interest rate is 6% (or 0.06 as a decimal), the interest is compounded annually (n = 1), and she wants to calculate the amount after three years (t = 3).
Plugging these values into the formula, we get:
A = 5000(1 + 0.06/1)^(1*3)
A = 5000(1 + 0.06)^3
A = 5000(1.06)^3
A = 5000(1.191016)
A = $5,955.08 (rounded to the nearest cent)
Therefore, Kate can collect $5,955.08 after three years if she invests her $5,000 in a mutual fund that earns 6.00 percent each year.