Question

ses in Compound Interest en answer the following questions: ASSIGN 049 Exercises in Study Appendix 9. r sixtieth birthday. You whday You plan to work 5 more years before retiring. Then you want for a Mediterranean cruise. What lump sum do you have to invest now to accu- sume your minimum desired rate of return is as follows: >> It is your sixtie nend $20,000 for a M mulate the $20,0002 5%, compounded annually 10% compounded annually b. 10%, co mpounded annually 20%, compounded You want to spend $5.0. 5000 on a vacation at the end of each of the next 5 years. What lump sum est now to take the five vacations? Assume that your minimum desired rate do you have to of return is as follows: 5%, compounded annually b 10%, compounded annually c. 20%, compounded annually A .

Answer 1

(1)

(a) minimum desired rate = 5%,

present value = future value/FVF

= $20000/1.27628

= $15670.54

therefore, lump sum amount to be invested now is $15670.54

where,

FVF(5%, 5) = 1.27628

(b) minimum desired rate = 10%,

present value = future value/FVF

= $20000/1.61051

= $12418.43

therefore, lump sum amount to be invested now is $12418.43

where,

FVF(10%, 5) = 1.61051

(c) minimum desired rate = 20%,

present value = future value/FVF

= $20000/2.48832

= $8037.55

therefore, lump sum amount to be invested now is $8037.55

where,

FVF(20%, 5) = 2.48832