Question

This Test: 50 pts pos EQuestion Help Amy wants to take the next four years off work to travel around the world. She estimates her annual cash needs at $28,000 (f she needs more,, she will work odd jobs) Amy beleves she can invest her savings at 12 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 Annulty of $1 table) Read the reauirements Requirement 1. How much money does Amy need now to fund her travels? (Round your answer to the nearest whole dollar) With the 12 % interest rate, Amy needs $ Requirement 2. After speaking with a number of banks, Amy leams she will only be able to invest her funds at 4 % How much does she need now to fund her trevels? (Round your answer to the nearest whole dolar) With a 4% interest rabe, Amy would need S to be able to withdraw $28,000 per year If Amy's savings are earning a lower interest rate (4 % ) , she will need to save

Answer 1

Solution 1:

With 12% interest rate Amy needs = $28,000 * Cumulative PV factor at 12% for 4 periods

= $28,000 * 3.037 = $85,036

Solution 2:

With 5% interest rate Amy needs = $28,000 * Cumulative PV factor at 4% for 4 periods

$28,000 * 3.630 = $101,640

If Amy's savings are earning a lower interest rate (4%), she will need to save $101,640 to be able to withdraw $28,000 per year.