Question

a. You are saving for retirement 10 years from now. How much should you invest today so you will have an annuity of $20,000 per year for 20 years starting from the 11" year? b. If you were to invest $10,000 today @6%, how much would you have at the end of 15 years? C. You are planning to save $100,000 for a yacht purchase 5 years from now. If you believe you can earn an 8% rate of return, how much should you invest today? d. Suppose you have a 1-year old son and you want to provide $100,000 in 17 years towards his college education. You currently have $8,000 to invest. What interest rate must you earn to have the $100,000 when you need it? e. How long would it take for $100,000 to grow to $300,000 assuming an 8% rate of interest? f. You are considering an investment that will pay $1,000 in 3 years and $10,000 in 15 years? How much would you be willing to pay for this investment? g. If you invest $100 today, $200 in one year, $300 in two years.......$600 in 5 years, how much will you have at the end of 5 years? Assume a 5% rate of interest. h. You will have accumulated $50,000 in student loans by the time you graduate. The interest rate on the loan is 7%. What will be your monthly payment for a term of 30 years? i. You are saving for a house. You put in $10,000 today each year starting today for 5 years. How much will you have at the end of 5 years? j. Suppose that you are offered an investment that will pay you $8,000 per year forever beginning 5 years from now. How much are you willing to pay for it today? Assume a 5% rate of interest. a

Answer 1

Answer,

a, Absents of interest rate i am not able to calculate the current amount

b. Assuming that interest rate is simple interest method. There is no hint for compounding is given in the question.

Calculation of interest = P*N* R

P = principal amount

N = No of years

R = Rate of Return.

So .....interest after 15 Years =10000*15*6/100=9000

Total amount after 15 years =10000+9000=19000

c.I wanted 100000 after five years...which is having interest rate of 8 %.

We have to calculate present value of future cash flow.That is Net present value.

= PV= FV/(1+r)n

= PV= 100000/ (1.08)5

=100000/1.469= 68058/-

d After 16 years i wanted 100000.

Now I have 8000in my hand.Assuming that there is no compounding.

Future Amount =PNR

1,00,000 =8000*16* interest rate

100000=128000Interst

100000/128000=.78.=78%

e.Same equation above.

Calculation of interest=

200000=100000*N*.08

200000/8000=25

100000*25*.08=200000+100000(principal amount)=300000

25 Years