Question

need help with B, C, D

Question 1 (20 points) a) Calculate the future value of $20,000 invested now (time zero) for 5 years. It grows at a rate of 3% per year compounded annually. b) How much money will you have 25 years from now, if you deposit $1,000 into a bank account at the end of each year. Assume that the bank gives an interest rate of 2% compounded annually? c) Calculate the present value of a uniform series of equal payments of $5,000 at the end of each year from Year 1 to Year 12 at an interest rate of 4% per year compound annually. d) Assume you plan to retire with $1,250,000 in your retirement account 40 years from now. How much money do you need to deposit into the account at the end of each year in order to reach your retirement goals if the account grows at 11% per year compounded annually?

Answer 1

b)

The future value is calculated below:

Future value = 1,000 x ((1+0.02)25 - 1 0.02

Future value = 1,000 x 32.0303

Future value = 32,030.30

c)

The present value is calculated below:

Present value = 5,000 X 1 - (1 + 0.04)-12 0.04

Present value = 5,000 X 9.3851

Present value = 46, 925.37

d)

The amount to be deposited annually is calculated below:

1,250,000 = Annual deposit x (1+0.1140 – 1 0.11

1,250,000 = Annual deposit x 581.8260664

2,148.41 = Annual deposit