Question

a. An investment will pay you $17,000 in 8 years. The appropriate discount rate is 10 percent compounded daily. Required: What is the present value?

b. You are planning to make monthly deposits of $60 into a retirement account that pays 9 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 16 years?

c. You are planning to save for retirement over the next 25 years. To do this, you will invest $800 a month in a stock account and $500 a month in a bond account. The return of the stock account is expected to be 11 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with a 9 percent return. Required: How much can you withdraw each month from your account assuming a 20-year withdrawal period? d. Suppose an investment offers to triple your money in 72 months (don't believe it). Required: What rate of return per quarter are you being offered?

Answer 1

a)FV=17000, N= 8*365, Rate=10%/365

PV= =PV(10%/365,8*365,,17000)

= $7639.43

b)PMT= $60

Rate= 9%/12

N= 16*12

FV= =FV(9%/12,16*12,60) = $25584.63

c)N=25

FV of the stock account= =FV(11%/12,25*12,-800)

=1260,906.64

FV of the bond account= =FV(6%/12,25*12,500)

=$346,496.98

Total FV of investment= 1607,403.62

This is now the PV at the time of retirement

Rate= 9%/12

N= 20*12

Hence Maximum withdrawal= =PMT(9%/12,20*12,-16707403.62)

= $150,320.85

d)Let the PV= 100, FV=300, N=72 months/3 = 24 quarters

Rate of interest=RATE(24,,-100,300)

= 4.68% per quarter