Question

In: Finance

Suppose you have set a specific goal for the balance in your savings account 12 years...

Suppose you have set a specific goal for the balance in your savings account 12 years from today. You have been making year-end deposits of $2,000 per year for the past 8 years, and this annual deposit (if continued for 12 more years) would have been sufficient to reach your goal under the 10 percent average annual interest rate (annual compounding) that you have been receiving. However you believe that the average annual interest rate on your deposits will be only 9 percent per year compounded annually over the remaining 12 years of the investment period. If your goal remains unchanged, you must adjust your annual deposit to reflect this new interest rate. Assuming that your next deposit will be made one year from today, what must be the amount of each of the remaining 12 deposits in order to reach your original goal?

Expert Solution

The goal 12 years from today is calculated using FV function in Excel :

rate = 10%

nper = 20 (20 annual deposits --> 8 already made and 12 more to be made)

pmt = -2000 (annual deposit. This is entered with a negative sign because it is cash outflow)

FV is calculated to be $114,550

The value of the account now is calculated using FV function in Excel :

rate = 10%

nper = 8 (8 annual deposits already made)

pmt = -2000 (annual deposit. This is entered with a negative sign because it is cash outflow)

FV is calculated to be $22,871.78

The amount of deposit (adjusted) to reach goal is calculated using PMT function in Excel :

rate = 9%

nper = 12 (12 annual deposits already made)

pv = -22871.78 (value of account now. This is entered with a negative sign because it is like a deposit into the account now)

fv = 114550 (required value of account 12 years from today)

PMT is calculated to be $2,493.42

The amount of deposit (adjusted) to reach goal is $2,493.42

jeff jeffy answered 2 hours ago

Suppose you have a goal of having a balance of $1000 in your investment account. No...

Suppose you have a goal of having a balance of $1000 in your investment account. No matter what your initial conditions or target value happen to be, are you always guaranteed to reach your goal within 15 years? If your answer is "no", find a combination of variables that will justify your answer.

Calculating Annuity Values. You want to have $60,000 in your savings account 12 years from now,...

Calculating Annuity Values. You want to have $60,000 in your savings account 12 years from now, and you’re prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.4 percent interest, what amount must you deposit each year? Calculating Annuity Values. Your company will generate $47,000 in annual revenue each year for the next seven years from a new information database. If the appropriate interest rate is 7.1 percent, what is...

you wish to retire in 12 years and currently have $50,000 in a savings account yielding...

you wish to retire in 12 years and currently have $50,000 in a savings account yielding 5% annually and $100,000 in quality blue Chip stocks yielding 10% if you expect to add $30,000 at the end of each year to your stock before lose how much will you have in your retirement fund when you retire use appendix a and appendix eat answer the question round your answer to the nearest dollar what rate of return must you earn on...

Suppose you have $800,000 in your savings account when you retire. Your plan is to withdraw...

Suppose you have $800,000 in your savings account when you retire. Your plan is to withdraw $6,000 a month as retirement income from this account. You expect to earn annual interest of 6 percent, compounded monthly, on your money during your retirement. How many months can you be retired until you run out of money? a. 285.14 b. 210.83 c. 262.59 d. 220.27 The dividends paid by a corporation a. are tax-deductible, i.e., reduce the taxable income of the corporation...

You currently have $2,500 in your savings account. You would like to have $10,000 five years...

You currently have $2,500 in your savings account. You would like to have $10,000 five years from today. How much must you deposit in equal amounts at the end of each month for the next five years in order to reach your goal at an interest rate of 9% per year, compounded monthly?

Suppose you have deposited $10,000 in your high-yield saving account today. The savings account pays an...

Suppose you have deposited $10,000 in your high-yield saving account today. The savings account pays an annual interest rate of 4%, compounded semi-annually. Three years from today you will withdraw R dollars. You will continue to make additional withdraws of R dollars every 6 months, until you have a zero balance after your last withdrawal 6 years from now. Find R.

You want to have $62,000 in your savings account 3 years fromnow, and you're prepared...

You want to have $62,000 in your savings account 3 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.9 percent interest, what amount must you deposit each year?

Suppose you have a savings account earning 4.8% APR. you deposit $50 in the account at...

Suppose you have a savings account earning 4.8% APR. you deposit $50 in the account at the end of each week. What is the balance after 4 years

If you wish to have $800 in a savings account at the end of 4 years,...

If you wish to have $800 in a savings account at the end of 4 years, and 5% interest will be paid annually, how much should you put into the savings account now?

You want to have $42,000 in your savings account 8 years from now, and you're prepared...

You want to have $42,000 in your savings account 8 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 7.7 percent interest, what amount must you deposit each year? Multiple Choice $7,233.09 $3,991.63 $3,234.01 $5,250.00 $3,233.99