Question

Martha wants to take the next four years off work to travel around the world. She estimates her annual cash needs at $26,000 (if she needs more, she will work odd jobs). Martha believes she can invest her savings at 10% until she depletes her funds. (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. How much money does Martha need now to fund her travels? (Round your answer to the nearest whole dollar.) With the 10% interest rate, Martha needs $ A Requirements 1. How much money does Martha need now to fund her travels? 2. After speaking with a number of banks, Martha learns she will only be able to invest her funds at 6%. How much does she need now to fund her travels? Print Done

Answer 1

(1)

money needed to fund Martha’s travel = annual cash needs x PVAF

= $26000 x 3.16987

= $82416.62

therefore, with 10% interest rate Martha needs $82416.62

Where,

PVAF(10%,4) = 3.16987

(2)

In this case,

money needed to fund Martha’s travel = annual cash needs x PVAF

= $26000 x 3.46511

= $90092.86

therefore, with 6% interest rate Martha needs $90092.86

Where,

PVAF(6%,4) = 3.46511