Question

Amanda wants to take the next six years off work to travel around the world. She estimates her annual cash needs at $35,000 (if she needs more, she will work odd jobs). Amanda believes she can invest her savings at 10% 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 Annuity of $1 table.) Read the requirements. Requirement 1. How much money does Amanda need now to fund her travels? (Round your answer to the nearest whole dollar.) With the 10% interest rate, Amanda needs $ 152,425 Requirement 2. After speaking with a number of banks, Amanda learns she will only be able to invest her funds at 6%. How much does she need now to fund her travels? (Round your answer to the nearest whole dollar.) With a 6% interest rate, Amanda would need $ L

Answer 1

(1)

at 10% interest rate,

present value of annuity = annuity x PVAF

Therefore,

present value of $35000 = $35000 x PVAF(10%,6)

= $35000 x 4.355

= $152425

therefore, Amanda need $152425 now to fund her travel.

where,

PVAF(10%,6) = 4.355

(2)

at 6% interest rate,

present value of $35000 = $35000 x PVAF(6%,6)

= $35000 x 4.917

= $172095

​​​​​​​at 6% interest rate, Amanda would need $172095 to fund her travel.

where,

PVAF(6%,6) = 4.917