Question

2. Your parents will retire in 22 years. They currently have $250,000 saved, and they think they will need $1,800,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds? Round your answer to two decimal places.

3. An investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $400 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 5% annually, what is its present value? Round your answer to the nearest cent. $ If other investments of equal risk earn 5% annually, what is its future value? Round your answer to the nearest cent.

4. Find the amount to which $300 will grow under each of these conditions:

a. 15% compounded annually for 7 years. Do not round intermediate calculations. Round your answer to the nearest cent.

b. 15% compounded semiannually for 7 years. Do not round intermediate calculations. Round your answer to the nearest cent.

c. 15% compounded quarterly for 7 years. Do not round intermediate calculations. Round your answer to the nearest cent.

d. 15% compounded monthly for 7 years. Do not round intermediate calculations. Round your answer to the nearest cent.

e. 15% compounded daily for 7 years. Do not round intermediate calculations. Round your answer to the nearest cent.

Why does the observed pattern of FVs occur?

Answer 1

Answer to Question 2:

Current Saving = $250,000
Desired Sum = $1,800,000
Time to Retirement = 22 years

Current Saving * (1 + Interest Rate)^Time Period = Desired Sum
$250,000 * (1 + Interest Rate)^22 = $1,800,000
(1 + Interest Rate)^22 = 7.20
1 + Interest Rate = 1.0939
Interest Rate = 0.0939 or 9.39%

Answer to Question 3:

Payment, Year 1 = $50
Payment, Year 2 = $50
Payment, Year 3 = $50
Payment, Year 4 = $250
Payment, Year 5 = $400
Payment, Year 6 = $500

Present Value = $50/1.05 + $50/1.05^2 + $50/1.05^3 + $250/1.05^4 + $400/1.05^5 + $500/1.05^6
Present Value = $1,028.36

Future Value = $50*1.05^5 + $50*1.05^4 + $50*1.05^3 + $250*1.05^2 + $400*1.05 + $500
Future Value = $1,378.10