Question

FINANCE

5.

5A.

You deposit $5000 in an account earning 8% interest compounded monthly. How much will you have in the account in 15 years?

5B.

You can afford a $350 per month car payment. You've found a 3 year loan at 2% interest. How big of a loan can you afford?

5C.

You have $300,000 saved for retirement. Your account earns 5% interest. How much will you be able to pull out each month, if you want to be able to take withdrawals for 15 years?

5D.

Suppose you want to have $700,000 for retirement in 35 years. Your account earns 4% interest. How much would you need to deposit in the account each month?

5E.

Suppose you want to have $700,000 for retirement in 35 years. Your account earns 4% interest. How much would you need to deposit in the account each month?

Answer 1

5A. PV =5000
Rate per month =8%/12
Number of months =15*12 =180
FV =PV*(1+r)^n =5000*(1+8%/12)^180 =16534.61

5B. PMT =350
Rate per month =2%/12
Number of months =3*12 =36
Amount of loan you can afford =PMT*((1-(1+r)^-n)/r) =350*((1-(1+2%/12)^-36)/(2%/12))=12219.57

5C. PV of retirement =300000
Rate per month =5%/12
Number of months =15*12 =180
Amount per month =PV/((1-(1+r)^-n)/r =300000/((1-(1+5%/12)^-180)/(5%/12))=2372.38

5D. FV =700000
Number of months =35*12 =420
Rate per month =4%/12
Amount of monthly deposit =FV/((1+r)^n-1)/r) =700000/((1+4%/12)^420-1)/(4%/12))=766.09

5E. FV =700000
Number of months =35*12 =420
Rate per month =4%/12
Amount of monthly deposit =FV/((1+r)^n-1)/r) =700000/((1+4%/12)^420-1)/(4%/12))=766.09