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Answer:
2.02955
Step-by-step explanation:
Given that:
Susan invests $Z as each year ends for seven years.
So we assume that Z = 1
Susan's accrued value comprises $7 invested each year at a 6 percent annual effective rate.
The cashflow interest:
The cashflow of Susan interest payments are:
Payments Time
0 1
0.05 2
2(0.05) 3
3(0.05) 4
4(0.05) 5
5(0.05) 6
6(0.05) 7
The accumulated value of this cash flow is:
So Susan accumulated values is:
X = 7 + 1.1653
X = 8.1653
Lori's accumulated value is $14, which she has set aside to plan her cash flow for interest.
The cashflow of Lori interest payments are;
Payments 0 0.025 2(0.025) 3(0.025) ......... 13(0.025)
Time 1 2 3 4 .......... 14
The accumulated value of cash flow is:
Now, Lori's accumulated value is:
Y = 14 + 2.5719
Y = 16.5719
Since; Susan value X = 8.1653
Lori's value Y = 16.5719
∴
= 2.02955