Question 1

Exercise 6-2 Alan Jackson invests $20,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Alan withdrew the accumulated amount of money.

Instructions

(a) Compute the amount Alan would withdraw assuming the investment earns simple interest.

(b) Compute the amount Alan would withdraw assuming the investment earns interest compounded annually.

(c) Compute the amount Alan would withdraw assuming the investment earns interest compounded semiannually.

Question 2

Clarence Weatherspoon, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to with- draw $20,000 per year on June 30, beginning in 2018 and continuing through 2021. To develop this fund, Clarence intends to make equal contributions on June 30 of each of the years 2014–2017.

Instructions

(a) How much must the balance of the fund equal on June 30, 2017, in order for Clarence Weatherspoon to satisfy his objective?

b)What are each of Clarence’s contributions to the fund?