Question

Use future or present value techniques to solve the following problems.

1. Starting with $9,000, how much will you have in 18 years if you can earn 12 percent on your money? Round the answer to the nearest cent. Round FV-factor to three decimal places.
   Calculate your answer based on the FV-factor.

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   Calculate your answer based on the financial calculator.

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   If you can earn only 8 percent? Round the answer to the nearest cent. Round FV-factor to three decimal places.
   Calculate your answer based on the FV-factor.

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   Calculate your answer based on the financial calculator.

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2. If you inherited $40,000 today and invested all of it in a security that paid a 12 percent rate of return, how much would you have in 25 years? Round the answer to the nearest cent. Round FV-factor to three decimal places.
   Calculate your answer based on the FV-factor.

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   Calculate your answer based on the financial calculator.

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3. If the average new home costs $300,000 today, how much will it cost in 11 years if the price increases by 7 percent each year? Round the answer to the nearest cent. Round FV-factor to three decimal places.
   Calculate your answer based on the FV-factor.

   $  

   
   
   Calculate your answer based on the financial calculator.

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4. You think that in 11 years it will cost $250,000 to provide your child a 4-year college education. Will you have enough if you take $78,000 today and invest it for the next 11 years at 6 percent? Round the answer to the nearest cent. Round FV-factor and FVA-factors to three decimal places.
   -Select-YesNoItem 9 , you will have approximately

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   -Select-morelessItem 11 than your estimate of $250,000.
   
   If you start from scratch, how much will you have to save each year to have $250,000 in 11 years if you can earn a 6 percent rate of return on your investments?
   Calculate your answer based on the FVA-factor.

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   Calculate your answer based on the financial calculator.

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5. If you can earn 9 percent, how much will you have to save each year if you want to retire in 35 years with $1.8 million? Round the answer to the nearest cent. Round FVA-factor to three decimal places.
   Calculate your answer based on the FVA-factor.

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   Calculate your answer based on the financial calculator.

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6. You plan to have $600,000 in savings and investments when you retire at age 66. Assuming that you earn an average of 7 percent on this portfolio, what is the maximum annual withdrawal you can make over a 20-year period of retirement? Round the answer to the nearest cent. Round PVA-factor to three decimal places.
   Calculate your answer based on the PVA-factor.

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   Calculate your answer based on the financial calculator.

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Answer 1

Answer a.

If interest rate is 12%:

Using FV-factor:

Present Value = $9,000
Period = 18 years
Interest Rate = 12%

Future Value = $9,000 * FV of $1 (12%, 18)
Future Value = $9,000 * 7.690
Future Value = $69,210

Using financial calculator:

N = 18
I = 12%
PV = -9000
PMT = 0

FV = 69210

Future Value = $69,210

If interest rate is 8%:

Using FV-factor:

Present Value = $9,000
Period = 18 years
Interest Rate = 8%

Future Value = $9,000 * FV of $1 (8%, 18)
Future Value = $9,000 * 3.996
Future Value = $35,964

Using financial calculator:

N = 18
I = 8%
PV = -9000
PMT = 0

FV = 35964

Future Value = $35,964