Question

9. The time value of money Consider the following scenarios: Simon Family The Simons have saved $5,000 towards their goal to have $30,000 for a down payment on a house in 5 years. They will put the $5,000 in an account along with money they will deposit annually. They don't know how much that annual deposit should be, so they've asked you to calculate it They have found a savingsinstitution that will pay 6% interest. Perkette Family The Perkettes have set a goal to have $30,000 for a down payment on a house in 5 years. They have not saved anything so far. They have asked you to calculate how much they will need to put away each year to achieve their $30,000 down payment goal They have found a savings institution that will pay 6% interest. Use the scenarios along with the following factor table data to answer each of the questions. Note that the complete Future Value and Future Value Annuity tables (as well as the Present Value and Present Value Annuity tables) are located in the appende in your text.

Answer 1

Simon's Family Goal at the end of Year 5 Present value of savings Future value of savings at the end of year 5 (5000* FV Interest factor, i.e., 1.340) $ $ $ 30,000 5,000 6,700 Balance future Value (30000-6700) Yearly amount to be deposited (23300/FV Annuity factor,i.e., 5.630) $ 23,300 $ 4,138.54 Conclusion Simon's Family need to deposit $ 4,138.54 annually for 5 years at the beginning of every year to achieve their down payment goal. Perkette's Family Goal at the end of Year 5 Yearly amount to be deposited (30000/FV Annuity factor,i.e., 5.630) $ 30,000 $ 5,328.60 Conclusion Perkette's Family need to deposit $ 5,328.60 annually for 5 years at the beginning of every year to achieve their down payment goal.