Question

I included the chart I would develop to identify the problem's time value of money variables for the calculation. Please use a financial calculator or financial calculator application for all problems. To receive credit for your calculations, please include the appropriate time value of money variables chart with your response. There is no need to document the time value of money formula used, as provided in the textbook.

Using a financial calculator or online application, calculate the following:

(a) The amount a person would need to deposit today to be able to withdraw $6,000 each year for ten years from an account earning 6 percent.

N	10
I/Y	6
PV	CPT
PMT	6,000
FV	0

(b) A person is offered a gift of $5,000 now or $8,000 five years from now. If such funds could be expected to earn 8 percent over the next five years, which is the better choice?

N	5	5
I/Y	8	8
PV	5,000	CPT
PMT	0	0
FV	CPT	8,000

(c) A person wants to have $3,000 available to spend on an overseas trip four years from now. If such funds could be expected to earn 6 percent, how much should be invested in a lump sum to realize the $3,000 when needed?

N	4
I/Y	6
PV	CPT
PMT	0
FV	3,000

(d) A person invests $50,000 in an investment that earns 6 percent. If $6,000 is withdrawn each year, how many years will it take for the fund to run out?

N	CPT
I/Y	6
PV	-50,000
PMT	6,000
FV	0

Answer 1

(a) The amount a person would need to deposit today to be able to withdraw $6,000 each year for ten years from an account earning 6 percent.

N	10
I/Y	6
PV	CPT
PMT	6,000
FV	0

$44,160.52

(b) A person is offered a gift of $5,000 now or $8,000 five years from now. If such funds could be expected to earn 8 percent over the next five years, which is the better choice?

N	5	5
I/Y	8	8
PV	5,000	CPT
PMT	0	0
FV	CPT	8,000

PV₂ = 5444,66 > PV₁

FV₁ = 7346.64 < FV₂

Hence the Second Option is better.

(c) A person wants to have $3,000 available to spend on an overseas trip four years from now. If such funds could be expected to earn 6 percent, how much should be invested in a lump sum to realize the $3,000 when needed?

N	4
I/Y	6
PV	CPT
PMT	0
FV	3,000

$2,376.28

(d) A person invests $50,000 in an investment that earns 6 percent. If $6,000 is withdrawn each year, how many years will it take for the fund to run out?

N	CPT
I/Y	6
PV	-50,000
PMT	6,000
FV	0

11.89 years

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