Question

1. You love to swim and are considering whether to install a pool in your house or just have a membership to a private swimming pool. To install a pool will cost you $20,000 today and $200 per month for maintenance costs (the maintenance costs start next month and go for 20 years).

If you join the private swimming pool, it will cost you $500 per month, starting next month, for 20 years.

If your investments earn 5% APR (compounded monthly) which alternative has cheaper in present value terms and by how much?

A.Joining the pool club is cheaper by $75,763

B.Having your own pool is cheaper by $52,305

C.Joining the pool club is cheaper by $23,458

D.Having your own pool is cheaper by $23,458

E.None of the choices is correct

2. You would like to retire 20 years from today. You’ve calculated that you will need to have the current equivalent of $1,500,000 in your investment account at that time. You expect inflation to average 2% per year for the next 20 years. If your investments earn 5% APR (compounded monthly), how much do you have to invest each month, starting next month, for 20 years (the same amount each month) in nominal terms to meet your retirement goal?

A. $3649

B. $3,851

C. $5,700

D. None of the choices is correct

E. $5,423

Answer 1

1)

Net saving from constructing pool:

= $45,458-$20,000

= $25,458

Hence, correct option is "E. None of the choices is correct."