The Value of Compound Interest for Investments

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.

Click on the “Project” tab on the top navigation bar for details on the course project.

Procedure

  1. Assume your company has $25,000 available to invest for 10 years. The investment may be broken down into $5,000 increments.
  2. Make an assumption about the company’s risk-return trade-off tolerance. Write a statement about your assumption.
  3. 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.

  1. 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.
  2. 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.

 

Assignment 4.3: Investment Strategy

In this assignment you will create an investment plan for your project business, supporting your analysis using personal experience, website searches, and/or interviews.

Click on the “Project” tab in the top navigation bar for details on the course project.

Procedure

  1. Research the different types of investment strategies available to your company found online, in practice, by brainstorming, or in the text. Remember to consider reinvesting in the company through retained earnings or issuing a dividend to the company’s stockholders as viable options.
  2. Open your course project Microsoft Excel file and rename Sheet 4 to “Investment Strategy.”
  3. Determine the risk-return trade-off for your company. Record this in the “Investment Strategy” sheet in an easily readable format in this worksheet. Avoid using paragraph format. Excel is more amenable to bullets.
  4. Choose investments for your business based on your risk-return trade-off analysis for the company and your research. Record these in the worksheet “Investment Strategy” along with the rationale for your choices. Record the information in an easily readable format in this worksheet. Make certain to include the source/s of the information provided.
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