Question

Suppose you are committed to owning a $225,000 Ferrari.

Required:

If you believe your mutual fund can achieve a 8.50 percent annual rate of return, and you want to buy the car in 14 years on the day you turn 35, how much must you invest today? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Amount to be invested

$

You have just made your first $10,000 contribution to your individual retirement account. Assume you earn a 7.5 percent rate of return and make no additional contributions.

Requirement 1:

What will your account be worth when you retire in 45 years? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Amount

$

Requirement 2:

What if you wait 10 years before contributing? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Amount

$

You expect to receive $20,000 at graduation in two years. You plan on investing it at 10 percent until you have $100,000.

Required:

How long will you wait from now? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Period

years

You have decided that you want to be a millionaire when you retire in 45 years.

Requirement 1:

If you can earn an annual return of 9 percent, how much do you have to invest today? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Investment

$

Requirement 2:

What if you can earn 4.5 percent? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Investment

$

You have $25,000 you want to invest for the next 30 years. You are offered an investment plan that will pay you 5 percent per year for the next 15 years and 8 percent per year for the last 15 years.

Requirement 1:

How much will you have at the end of the 30 years? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Amount

$

Requirement 2:

If the investment plan pays you 8 percent per year for the first 15 years and 5 percent per year for the next 15 years, how much will you have at the end of the 30 years? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Amount

$

Answer 1

	Rate	Rate of return	8.50%
	Nper	Number of years	14				71806.9
	Fv	Amount required after 14 years	$225,000
	PV	Amount to be invested today	$71,806.90	(Using PV function of excelwith Rate=8.5%,Nper=14, Fv=-225000)
		Excel Command: =PV(8.5%,14,,-225000)
		Amount to be invested	$71,806.90
	Pv	Amount contributed now	$10,000
	Nper	Number of years	45
	Rate	Rate of return per year	7.50%
	FV	Amount worth in 45 years	$259,048.39	(Using FV function of excelwith Rate=7.5%,Nper=45, Pv=-10000)
		ExcelCommand:=FV(7.5%,45,,-10000)
		Amount	$259,048.39
		If youwait for 10years before contributing
		Amount worth in 35 years	$125,688.70	(Using FV function of excelwith Rate=7.5%,Nper=35, Pv=-10000)
		ExcelCommand:=FV(7.5%,35,,-10000)
		Amount	$125,688.70
	Pv	Amount to be invested in 2 years	$20,000
	Rate	Interest rate	10%
	Fv	Required Future Value	$100,000
	NPER	Number of years of investment	16.9	(Using NPER function of excelwith Rate=10%, Pv=-20000,Fv=100,000)
		Number of years from now	19.9	(16.9+2)
		Period	20	Years	(rounded towhole number)