Question

1. You would like to save enough to be able to afford a college tuition payment of $60,000 per year for four years. Your first year of tuition will be in 18 years. You are advised that if you save $5,000 per year and earn 9% per year compounded annually you will achieve your financial goal.

True Or false

2. Investments in the Stock Market over any two-year period will always have a higher return than 2-year certificates of deposit issued by JP Morgan Chase and insured by the FDIC.

True or False??

3. A fundamental personal finance problem is balancing spending and saving.

True or False?

Answer 1

1) True

CF0 = (5000)

C01 = (5000)

F01 = 17

C02 = 60000

F02 = 4

I = 9

CPT NPV = (2801)

Means, even if you invest 2801 lesser in CF0 year currently, you will be in a position to pay tution fees after 18 years.

2) Stock market returns have market risk, ie. returns are not fixed and can have negetive returns as well. CDs of JP Morgan corporate, insured by FDIC are fully secured and thus returns are fixed. Thus false, sometimes CDs returns ma be higher than equities as well.

3) Balancing spending and investment.