Reference no: EM132992221
Question - You have $50,000 saving and are considering a 30-year investment which is offered in two phases:
Phase 1: Investing that $50,000 as a lump sum in an investment in the securities market for 20 years. Your securities broker recommends two alternative options: Option A pays interest rate of 11.87%, compounding daily. Option B pays interest rate of 12%, compounding quarterly.
Phase 2: At the end of 20 years, putting the total amount accumulated in the first phase into another investment, which will pay you an equal income at the end of each year for 10 years.
Required -
A) Calculate the amount of money you would accumulate in Phase 1 after 20 years if you choose Option A?
B) Assume that after 20 years, you put totally $500,000 in the investment in Phase 2, calculate the amount of yearly income would you receive each year for 10 years if the required rate of return is 12.5%, compounding annually?
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