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22 February, 10:40

Leo received $7,500 today and will receive another $5,000 two years from today. He will invest these funds when he receives them and expects to earn a rate of return of 11.5 percent. What value does he expect his investments to have five years from today?

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  1. 22 February, 10:44
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    Value of Investment = Principal (1+Rate of return) ^Number of periods

    For the first investment the principal is 7,500, the rate of return is 11.5% and the number of periods are 5 so the value of the investment will be

    7,500 (1+0.115) ^5=12,925

    For the second investment the principal is 5,000, the rate of return is 11.5 and the number of periods are 3 as the 5,000 is invested two years from today.

    5,000 * (1+0.115) ^3=6,931

    Total value of investments = 12,925 + 6,931 = $19,856
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