How much will you have saved for retirement

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Reference no: EM133988252

Question 1.

You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $5000. You plan to put down $1000 and borrow $4000. You will need to make annual payments of $1000 at the end of each year.

Show the timeline of the loan from your perspective.

How would the timeline differ if you created it from the bank's perspective?

Question 2.

You currently have a four-year-old mortgage outstanding on your house. You make monthly payments of $1500. You have just made a payment. The mortgage has 26 years to go (i.e., it had an original term of 30 years).

Show the timeline from your perspective.

How would the timeline differ if you created it from the bank's perspective?

The Three Rules of Time Travel

Question 3.

Calculate the future value of $2000 in:
a. Five years at an interest rate of 5% per year.
b. Ten years at an interest rate of 5% per year.
c. Five years at an interest rate of 10% per year.
d. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)?

Question 4.

What is the present value of $10,000 received:
a. Twelve years from today when the interest rate is 4% per year?
b. Twenty years from today when the interest rate is 8% per year?
c. Six years from today when the interest rate is 2% per year?

Question 5.

Your brother has offered to give you either $5000 today or $10,000 in 10 years. If the interest rate is 7% per year, which option is preferable?

Question 6.

Consider the following alternatives:
i. $100 received in one year
ii. $200 received in five years
iii. $300 received in ten years

a. Rank the alternatives from most valuable to least valuable if the interest rate is 10% per year.
b. What is your ranking if the interest rate is only 5% per year?
c. What is your ranking if the interest rate is 20% per year?

Question 7.

Suppose you invest $1000 in an account paying 8% interest per year.
a. What is the balance in the account after three years? How much of this balance corresponds to "interest on interest"?
b. What is the balance in the account after 25 years? How much of this balance corresponds to interest on interest? Get authentic, AI-free assignment help online from top tutors.

Question 8.

Your daughter is currently eight years old. You anticipate that she will be going to college in 10 years. You would like to have $100,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 3% per year, how much money do you need to put into the account today to ensure that you will have $100,000 in 10 years?

Question 9.

You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 five years after the date of your retirement. Which alternative should you choose if the interest rate is:
a. 0% per year?
b. 8% per year?
c. 20% per year?

Question 10.

You are 25 years old and decide to start saving for your retirement. You plan to save $5000 at the end of each year (so the first deposit will be one year from now), and will make the last deposit when you retire at age 65. Suppose you earn 8% per year on your retirement savings.
a. How much will you have saved for retirement?
b. How much will you have saved if you wait until age 35 to start saving (again, with your first deposit at the end of the year)?

Question 11.

Your grandmother has been putting $1000 into a savings account on every birthday since your first (that is, when you turned one). The account pays an interest rate of 3%. How much money will be in the account on your 18th birthday immediately after your grandmother makes the deposit on that birthday?

Question 12.

A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1000. Each year after that, on the anniversary of the last payment, you will receive a payment that is 8% larger than the last payment. This pattern of payments will go on forever. If the interest rate is 12% per year:
a. What is today's value of the bequest?
b. What is the value of the bequest immediately after the first payment?

Reference no: EM133988252

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