You are saving for retirement. To live comfortably, you decide that you will nee

Question

You are saving for retirement. To live comfortably, you decide that you will need $2.5 million dollars by the time you are 65. If today is your 30th birthday, and you decide, starting today, and on every birthday up to and including your 65th birthday, that you will deposit the same amount into your savings account. Assuming the interest rate is 5%, the amount that you must set aside each and every year on your birthday is closest to:

a. $71,430

b. $27,680

c. $26,100

d. $26,260

You are interested in purchasing a new automobile that costs $35,000. The dealership offers you a special financing rate of 6% APR (0.5%) per month for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer's financing deal, then your monthly car payments would be closest to:

a. $647

b. $729

c. $842

d. $822

Use the following information to answer the question below.

Your great aunt Matilda put some money in an account for you on the day you were born. This account pays 8% interest per year. On your 21st birthday the account balance was $5,033.83.

The amount of money that would be in the account if you left the money there until your 65th birthday is closest to:

a. $168,824

b. $29,556

c. $148,780

d. $748,932

Consider the following timeline detailing a stream of cash flows:

            If the current market rate of interest is 8%, then the present value of this stream             of cash flows is closest to:

a. $21,211

b. $24,074

c. $22,871

d. $26,000

Explanation / Answer

Formula is 2,500,000 = P x (a^n-1)/(a-1) Where n = 65-30 = 35 year a = 1+5/100 = 1.05 sp 2,500,000 = P x (1.05^35-1)/(1.05-1) OR 2,500,000= P x 90.32031 Hence, P = 2,500,000/90.32031=27679.27 Answer: b. For annual equal paument formula is A = P x r(1+r)^48/((1+r)^48-1) Where A = 35000 r = 0.5/100=0.005 Therefore A = 35000 x 0.005 x (1.005^48)/(1.005^48-1) Or A = 35000 x 0.006352/0.270489 or A = 821.9765 Answer: d On 21st Birthday, Princial amount =5033.83 so his 65th birthday the amount accumulates to A = 5033.83 x (1+8/100)^(65-21) Or, A = 5033.83 x 1.08^44 = 148,779.7 Answer: C. Timeline details is not available, cant solv last problem.

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