8. Suppose that you are now 30 and that you would like $2 million at age...

8. Suppose that you are now 30 and that you would like $2 million at age 65 to fund your retirement. You would like to save each year an amount that grows by 5% each year (that is, if you save $1 this year, you will save $1.05 next year). Assume that the discount rate is 8%. How much should you start saving at the end of this year? (Hint: first calculate the present value of the $2 million, then use the growing annuity formula to calculate the amount you must save at the end of this year).

		$8,920
		$6,473
		$15,200
		$57,142

9. You’ve decided to buy a new computer that costs $1,500. But Best Buy will let you take the computer home without making paying the full price immediately. Rather, Best Buy will let you pay $500 now, and $500 at the end of each of the next two years.

Your bank offers you a savings account that earns 2% annually, and a two-year certificate of deposit (CD) that earns 5% annually. Note that to earn the 5% on the CD, you have to leave your money there for the full two years.

How much money do you need today to make sure you can make all the payments to Best Buy?

		1500
		1470.78
		1443.71
		1429.71

Expert Solution

jeff jeffy answered 4 months ago

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