Assignment 4.1: The Value of Compound Interest for Investments
In this course project assignment, you will research the value of compounding interest (or reinvesting all gains) for investments.
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Assume your company has $25,000 available to invest for 10 years. The investment may be broken down into $5,000 increments.
Make an assumption about the company’s risk-return trade-off tolerance. Write a statement about your assumption.
Choose investments from the following list that meet the company’s risk tolerance:
Cash-on-hand checking account, 0% interest
Savings account at 1½% interest, compounded annually
CD’s at 3%, compounded bi-annually
Bonds at 7% interest, compounded bi-annually
Mutual funds at 10%, compounded quarterly
Stocks at 15%, compounded quarterly
For example: you may choose $5,000 in Cash-on-hand; $10,000 invested in CD’s; and $10,000 invested in Bonds.
Using Table 12.1 “Future Value of $1 at Compound Interest” inPractical Business Math Procedures (text), calculate the value of the investment in each account after the 10 year time period for each investment chosen. Compute the total for the investment.
After you have organized your thoughts, post your recommendation for how the company should invest the $25,000 to the course Forum. Provide an argument for each investment you made, supporting your choices using the risk-return trade-off assumption you made for the company. Copy this information to the financial plan final report template.