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

Question

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

a. Starting with $20,000, how much will you have in 20 years if you can earn 5% on your money?
b. If you inherited $100,000 today and invested all of it in a security that paid an 8% rate of return, how much would you have in 15 years?
c. If the average new home costs $200,000 today, what will be the value in 10 years if inflation is 4% per year?
d. If you can earn 9% per year, how much will you have to save each year if you want to retire in 40 years with $3 million?

Explanation / Answer

a. FVn = PV ( 1+r)n

FV20 = 20,000 x ( 1.05)20 = $ 20,000 x 2.6533 = $ 53,066

b. FV15 = 100,000 x (1.08)15 = $ 100,000 x 3.1722 = $ 317,220

c. FV10 = $ 200,000 x ( 1.04)10 = $ 200,000 x 1.4802 = $ 296,040

d. Annuity x FVIFA 9%, 40years = $ 3,000,000 or Annuity = $ 3,000,000 / 337.8824 = $ 8,878.83

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