Question

1. You are considering investing in a bank account that pays a nominal annual rate of 7%, compounded monthly. If you invest $3,000 at the end of each month, how many months will it take for your account to grow to $150,000?
2. An uncle of yours who is about to retire wants to sell some of his stock and buy an annuity that will provide him with income of $50,000 per year for 30 years, beginning a year from today. The going rate on such annuities is 7.25%. How much would it cost him to buy such an annuity today?
3. You want to open a sushi bar 3 years from now, and you plan to save $7,000 per year, beginning immediately. You will make 3 deposits in an account that pays 5.2% interest. Under these assumptions, how much will you have 3 years from today?

Answer 1

1.

Data:	Nominal rate (7%/12)		0.0058
	PMT		$ 3,000.00
	Future Value		$ 150,000
	Present Value		0
	Time Period		?
	Formula Used:		NPER(rate, pmt, PV, -FV)
		=	NPER( 0.0058, 3000, 0, -150000)
		=	44.0021

 

 

2.

Data:	Time period		30	Years
	Income (PMT)		$50,000
	Interest Rate		7.25%
	Future Value		0
	Formula Used:		PV( rate, nper, pmt, -FV)
		=	PV(7.25%, 30 years, -50,000, 0)
		=	$605,183

 

 

 

3.

	Data:	Time Period		3	years
		PMT		7,000.00
		Interest Rate		5.2%
		Formula Used:		FV( rate, nper, pmt, -PV, type)
			=	FV(5.2%, 3 years, -7,000, 0, 1)
			=	$23,261

$23,261