Use future or present value techniques to solve the following problems. (Note: Y

Question

Use future or present value techniques to solve the following problems.

(Note: You can use tables or a financial calculator. If you use a calculator, please provide the inputs you used to solve the problems.) (5 points each = total 20 points)

a. If you invested 10,000 in a CD (certificate of deposit) paying you 5% per year, what would be the value of your CD at the end of 5 years?
b. If you won $250,000 today and invested all of it in a security that paid an 8% rate of return, how much would you have in 20 years?
c. If you bought a new home today valued at $300,000, what will be its value in 10 years if inflation is 3% per year?
d. If you can earn 8% per year on your retirement account, how much will you have to save each year if you want to retire in 20 years with $1 million?

Explanation / Answer

a. value of your CD at the end of 5 years = 10000*(1+5%)^5=$12,762.82

b. you have in 20 years = 250000*(1+5%)^20= 663,324.43

c. value in 10 years= 300000*(1+3%)^10=403,174.91

d.Let savings each year = x

x*(1+8%)^19 + x*(1+8%)^18+ x*(1+8%)^17 ....x*(1+8%)^0 = 1000,000

x=21852.21

annual savings =21852.21

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