accounting help

At 45 years of age, Seth figured he wanted to work only 10 more years. Being a full-time landlord had a lot

of advantages: cash flow, free time, being his own boss—but it was time to start thinking toward retirement.

The real estate investments that he had made over the last 15 years had paid off handsomely. After selling a

duplex and paying the associated taxes, Seth had $350,000 in the bank and was debt-free. With only 10 years

before retirement, Seth wanted to make solid financial decisions that would limit his risk exposure. Fortunately,

he had located another property that seemed to meet his needs— a well maintained four-unit apartment. The

price tag was $250,000, well within his range, and the apartment would require no remodeling. Seth figured he

could invest the other $100,000, and between the two hoped to have $1 million to retire on by age 55.

1. Seth read an article in the local newspaper stating the real estate in the area had appreciated by 5% per year

over the last 30 years. Assuming the article is correct, what would the future value of the $250,000 apartment

be in 10 years?

Initial Investment (PV)

Quoted Rate

Compounding Frequency

Choose one

Number of compoundings (m)

For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365

Quoted Rate divided by m = RATE

Number of Years

NPER (Num. of years * m)

Ending Amount (FV)

2. Seth’s current bank offers a 1-year certificate of deposit account paying 2% compounded semiannually.

A competitor bank is also offering 2%, but compounded daily. If Seth invests the $100,000, how much more

money will he have in the second bank after one year, due to the daily compounding?

Current Bank

Competitor Bank

Semiannually

Daily

Initial Investment (PV)

Quoted Rate

Compounding Frequency

Choose one

Number of compoundings (m)

For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365

Quoted Rate divided by m = RATE

Number of Years

NPER (Num. of years * m)

Ending Amount (FV)

Difference in FV

=D36-C36

3. After looking at the results from questions 1 and 2, Seth realizes that a 2% return in a certificate of deposit

will never allow him to reach his goal of $1 million in 10 years. Presuming his apartment will indeed be worth

$400,000 in 10 years, compute the future value of Seth’s $100,000 investment using a 10%, 15%, and 20% return

compounded semiannually for 10 years. Will any of these rates of return allow him to accomplish his goal of

reaching $1 million by age 55?

10%

15%

20%

Initial Investment (PV)

Quoted Rate

Compounding Frequency

Semiannually

Semiannually

Semiannually

Number of compoundings (m)

Quoted Rate divided by m = RATE

Number of Years

NPER (Num. of years * m)

Ending Amount (FV)

Plus: Apartment Value

$400,000

$400,000

$400,000

Total FV

=FV + Apartment Value

Which rate of return allows him to accomplish his goal of reaching $1 million?

Choose one

4. A friend of Seth’s who is a real estate developer needs to borrow $80,000 to finish a development project.

He is desperate for cash and offers Seth 18%, compounded monthly, for 2.5 years. Find the future value of

the loan.

Initial Investment (PV)

Quoted Rate

Compounding Frequency

Choose one

Number of compoundings (m)

For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365

Quoted Rate divided by m = RATE

Number of Years

NPER (Num. of years * m)

Ending Amount (FV)

5. After purchasing the apartment, Seth receives a street, sewer, and gutter assessment for $12,500 due in 2 years.

How much would he have to invest today in a CD paying 2%, compounded semiannually, to fully pay the assessment in 2 years?

Future Value Needed (FV)

Quoted Rate

Compounding Frequency

Choose one

Number of compoundings (m)

For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365

Quoted Rate divided by m = RATE

Number of Years

NPER (Num. of years * m)

Amount Invested Now (PV)