Question

Solve the following: 1. You want to be a millionaire in 25 years. If you can earn 10% on your investments, how much do you have to save each year to hit that $1,000,000 mark? Table______________________ 2. Amy is 65 and has $350,000 in her retirement account. An actuary has determined that if her investments earn 7%, she can withdraw $32,300 annually. How many more years does the actuary expect Amy to live? Table______________________ 3. Karla sued her landlord 5 years ago for damage to her things from a water leak and won a judgement against him. The original award was $15,500, but she finally received $18,858, which included interest. What is the rate of interest she received? Table_____________________ Use EXCEL to determine the following: 1. Ty bought a new car for $25,000. He put $2,000 down and financed the rest with the dealer who had a special offer of 2% interest for 60 monthly payments. How much will Ty pay each month? EXCEL function used: Inputs: Result: 2. Twins Taylor and Tanner both received $1,000 from their grandmother for their birthday. She told them they had to save it for 5 years. Taylor found an account paying 4.5% with monthly compounding. Tanner elected an account paying 5% with annual compounding. Who will have more at the end of the five years? EXCEL template used: Inputs: Results: Piper has $300,000 for her retirement. She is considering investing in a 20-year, 7% annuity and is trying to determine whether she should take the payments quarterly or monthly. Under which method would she get the most money each year? EXCEL function: Input: Results: Twins Kate and Allie will be going to college in 15 years. Their parents have decided that Dad will start a savings fund for Kate. He will deposit $2,000 into an account the first of each year. That account earns 7% and interest is compounded annually. Their mother will also deposit $2,000 into an account for Allie, but she is going to make those deposits at the end of each quarter and the account pays 7.5% compounded quarterly. Who will have more in her college fund? EXCEL function: Input: Results

Answer 1

1) Annual savings can be calculated using PMT function on a calculator

N = 25, I/Y = 10%, PV = 0, FV = 1,000,000 => Compute PMT = $10,168

2) No. of years can be calculated using N function on a calculator

I/Y = 7%, PMT = -32,300, PV = 350,000, FV = 0

=> Compute N = 21 years

3) Interest rate can be calculated using I/Y function on a calculator

N = 5, PMT = 0, PV = -15,500, FV = 18,858

=> Compute I/Y = 4.00%

4) Monthly payment can be calculated using PMT function

N = 60, I/Y = 2%/12, PV = 23,000, FV = 0

=> Compute PMT = $403.14