Paper Details
Optimism, Inc. anticipates the need for factory expansion four years from today. The firm has determined that it will have the necessary funds for expansion if it puts $400,000 per year into a stock portfolio expected to earn 9% per year. Deposits will be made at the end of each year.
a. How much is the company planning to raise toward factory expansion with this plan?
b. What amount would the company expect to raise if it could invest $400,000 per year for seven years?
c. Why is the answer to part b more than twice as large as the answer to part a even though the length of the annuity is less than twice as long?
