Question

How much would you have to deposit today if you want to have $1,000 in five years and the annual interest rate is 5%?

You plan to buy a house today for $220,000. If the real estate in your area is expected to increase in value by 2% each year, what will be the approximate value of your house in 7 years?

How much would you have to deposit today to be able to withdraw $500 each year for the next 10 years from an account that earns 8 percent a year?

Answer 1

1.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

1000=P*(1.05)^5

P=1000/1.05^5

=$1000*0.783526166

=$783.53(Approx).

2.

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$220,000*(1.02)^7

=$220,000*1.148685668

=$252,710.85(Approx).

c.

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$500[1-(1.08)^-10]/0.08

=$500*6.710081399

=$3355.04(Approx).