Question

Question 1 - How much money Helen need now to fund her travels?

Question 2 - After speaking with a number of banks, Helen learnt she will only be able to invest her funds at 6%. How much does she need now to fund her travels?

Answer 1

Answer 1 -

Annual Cash Required = $31,000
Interest Rate = 10%
Time Period = 4 years

Amount Deposited = $31,000 * Present Value of Annuity of $1 (10%, 4)
Amount Deposited = $31,000 * 3.170
Amount Deposited = $98,270

With the 10% interest rate, Helen needs $98,270.

 

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Answer 2 -

Annual Cash Required = $31,000
Interest Rate = 6%
Time Period = 4 years

Amount Deposited = $31,000 * Present Value of Annuity of $1 (6%, 4)
Amount Deposited = $31,000 * 3.465
Amount Deposited = $107,415

With the 6% interest rate, Helen needs $107,415.

 

 

If Helen’s savings are earning a lower interest rate (6%), she will need to save more to be able to withdraw $31,000 per year.

 

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Answer 1 - With the 10% interest rate, Helen needs $98,270.

Answer 2 - With the 6% interest rate, Helen needs $107,415.

 

 

If Helen’s savings are earning a lower interest rate (6%), she will need to save more to be able to withdraw $31,000 per year.