Question

a. How much would you have to deposit today if you wanted to have $42,000 in three years? Annual interest rate is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to the nearest whole dollar.)
  


b. Assume that you are saving up for a trip around the world when you graduate in two years. If you can earn 6% on your investments, how much would you have to deposit today to have $10,500 when you graduate? (Round your answer to 2 decimal places.)
  


c-1. Calculate the future value of an investment of $499 for nine years earning an interest of 10%. (Round your answer to 2 decimal places.)
  

d. Assume that a college parking sticker today costs $62. If the cost of parking is increasing at the rate of 6% per year, how much will the college parking sticker cost in seven years? (Round your answer to 2 decimal places.)
  



  

Answer 1

a.

Future value = Amount required after 3 years = $42,000

Annual interest rate = 10%

Present value = Future value / (1 + Interest rate)^{No. of periods}

Amount to be deposited today = $$42,000 / 1.10³ = $42,000 /1.331

=> $31555.22

b.

Amount required after 2 years from now = $10,500

Annual interest rate = 6%

Present value = Future value / (1 + Interest rate)^{No. of periods}

Deposit today = $10,500/1.06²

^{= $10,500/1.1236}

^=>$9,344.96

^c-1.

Value of investment now = $499

Annual interest rate = 10%

Period = 9 years

Future value = Present value * (1 + Interest rate)^{No. of periods}

Value of investment after 9 years = $499 * 1.10⁹

=$499*2.3579

=$1,176.59

d.

Future value = Present value * ( 1 + Interest rate)^{No. of periods}

Future value = $62 * (1 + .06)⁷

=$62*1.50

=>$93