Question

1. You plan to make two deposits to your bank account - one deposit today for $X and one deposit in four years for $3X. You would like to withdraw $20,000 from this bank account in 6 years, and another $10,000 in 12 years. You can earn an effective rate of 5% per year. What is $X? (8 points)

2. You want to have enough money in the bank to pay for your daughter’s education when the time comes. You expect to make 4 annual payments for college, with the first payment in 10 years. The first payment will be for $50,000 and each subsequent payment will be 5% higher than the previous payment. If you expect to earn 5% a year on your deposits, how much do you need in the bank now to ensure you will have the desired amount to fund your daughter’s education? (8 points)

Answer 1

IF ANY QUERY, FEEL FREE TO ASK IN COMMENTS Solution Here present value of X and 3X must be equal to present value of 20000 and 10000 PVF(r,n) (1/(1+r))" where PVF is present value factor, r is effective rate and n is number of year Hence, + + xx 3X PVF(5%,4) X 2.468107 3.468107 12000 PVF(5%,12) 21550.28 + + x 20000 PVF(5%,6) 26801.91 48352.19 48352.19 3.468107 11 13941.95 Hence, X is $13,941.95 Note : We are allowed to answer only one question, Kindly put other question in separate post.