Question

a) How many years will it take for something costing $68 today to cost $90 if...

a) How many years will it take for something costing $68 today to cost $90 if inflation averages 1.9% per year? Answer in years, rounded to one decimal place.

b) What is the future value of an annuity with annual cashflows of $8,000 for 20 years? The interest rate is 3.7%. Round to the nearest cent.

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Answer #1

Part a:

$90 = $68 * (1 + 1.9%)n

1.323529 = 1.019n

Taking log of both sides,

LN(1.323529) = n * LN(1.019)

0.280302 = n * 0.018822

n = 14.9 months

b)

FV = 8000 * 28.86803

FV = $230,944.24

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