If your firm invests 10000 in a fund which averages a 12 ann

Solution

Compound Interest and the Time Value of Money The concept of compound interest is the foundation of the time value of money, which states that the value of money changes to a person depending upon when it is received. Earning $100 today is preferable to earning $100 several years from now because if you have it in your hand immediately, you can invest it to generate dividends and interest income, you can spend it on things you want, you can pay down your debt to lower your interest expense, or you can give it to charity. By postponing the receipt of the $100, you are losing something economists call opportunity cost. When you learn about the time value of money, you\'ll learn the formulas that actually show you how to calculate compound interest. This will empower you to answer questions such as, \"If I need $1,000,000 for retirement thirty years from now and I can save $800 per month and earn 8% per year on my investments, will I reach my goal?\" or \"I\'m putting $12,000 per year into variable annuities that I expect to earn 7% for 18 years. How much will they be worth, assuming I\'m correct on my return estimate, when I\'m ready to cash out of the investment?\" Compound Interest Tables - The Value of $10,000 Invested In a Lump Sum 4% 8% 12% 16% 10 Years $14,802 $21,589 $31,058 $44,114 20 Years $21,911 $46,610 $96,463 $194,608 30 Years $32,434 $100,627 $299,600 $858,500 40 Years $48,010 $217,245 $930,510 $3,787,212 50 Years $71,067 $469,016 $2,890,022 $16,707,038