Question

Q1-You have decided to start saving money for your future. What is the future value of a 14-year annuity of $2,200 per year, assuming that you make your first payment today and the interest rate is 12 percent? (Enter your answer as a positive number rounded to 2 decimal places.)

Q2-You need to have $24,856 available at the end of 9 years. How much to do you have invest each year, starting at the end of this year, for 9 years to achieve this goal if the interest rate is 10%?   (Enter your answer as a positive number rounded to 2 decimal places.)

Q3-You need to have $24,856 available at the end of 9 years. How much to do you have invest each year, starting at the end of this year, for 9 years to achieve this goal if the interest rate is 10%?   (Enter your answer as a positive number rounded to 2 decimal places.)

Q4-Franklin Templeton has just invested $10,060 for his son (age one). This money will be used for his son’s education 18 years from now. He calculates that he will need $105,895 by the time the boy goes to school.

What interest rate does Mr. Templeton need to earn in order to achieve this goal? (Round your final answer to 2 decimal places. For example, enter .1245 as 12.45)

Answer 1

Solution 1:

Future value of annual deposit = $2,200 * Cumulative FV factor at 12% for 14 periods of annuity due

= $2,200 * 36.27971 = $79,815.36

Solution 2:

Future value = $24,856

Interest rate = 10%

Period = 9 years

Amount to be invested each year = $24,856 / Cumulative FV factor at 10% for 9 periods of ordinary annuity

= $24,856 / 13.57948 = $1,830.41

Solution 3:

Future value = $24,856

Interest rate = 10%

Period = 9 years

Amount to be invested each year = $24,856 / Cumulative FV factor at 10% for 9 periods of ordinary annuity

= $24,856 / 13.57948 = $1,830.41

Solution 4:

Required future value = $105,895

Amount invested = $10,060

Periods = 18 years

Let interest rate = i

Now

$10,060 (1+i)^18 = $105,895

(1+i)^18 = 10.52634

1+i = (10.52634)^1/18

i = 13.97%