Question

1) At the end of each year you deposit $750 in a retirement account that pays 6%. How much money will you accumulate for your retirement if you plan to retire 30 years from now?

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2) Starting today Andrew will deposit $2,000 per year in a retirement account that pays 6%. How much money will he accumulate for his retirement if he plans to retire 50 years from now?

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3)  You are looking into an investment that will pay you $12,000 per year for the next 15 years. If you require a 7% return, what is the most you would pay for this investment today?

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4) If today you pay $100,000 in exchange for a 20 year annuity with 10% return, what will be the annual cash flow?

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5) You are buying a house for $180,000. Your bank will lend you the money at 6% for 20 years. How much will you have to pay every month?

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6) An insurance company is trying to sell you an investment policy that will pay you and your heirs $50,000 per year forever. If the required return on the investment is 5%, how much will you pay for the policy?

Answer 1

	1)	N=	30
		I=	6%
		PV=	$10,323.62	(Using PV function of excel with Rate=6%, Nper=30, Pmt=-750,)
		PMT=	$750
		FV=	$59,293.64	(Using FV function of excel with Rate=6%, Nper=30, Pmt=-750,)
		Highlight Type of Annuity
		END	(Payment at the end of year)
	Money Accumulated for retirement	$59,293.64
	2)	N=	50
		I=	6%
		PV=	$33,415.14	(Using PVlfunction of excel with Rate=6%, Nper=50, Pmt=-2000,Type=1)
		PMT=	$2,000
		FV=	$615,512.12	(Using FV lfunction of excel with Rate=6%, Nper=50, Pmt=-2000,Type=1)
		Highlight Type of Annuity
		BEGINNING	(Payment at the end of year)
	Money Accumulated for retirement	$615,512.12
	3)	N=	15
		I=	7%
		PV=	$109,294.97	(Using PV function of excel with Rate=7%, Nper=15, Pmt=-12000)
		PMT=	$12,000
		FV=	$301,548.26	(Using FV function of excel with Rate=7%, Nper=15, Pmt=-12000,)
		Highlight Type of Annuity
		END	(Payment at the end of year)
	Maximum tobe paid today	$109,294.97
	4)	N=	20
		I=	10%
		PV=	$100,000
		PMT=	$11,745.96	(Using PMT function of excel with Rate=10%, Nper=20, Pv=-100000,)
		FV=	$672,749.99	(Using FV function of excel with Rate=10%, Nper=20, Pv=-100000,)
		Highlight Type of Annuity
		END	(Payment at the end of year)
	Annual Cash Flow	$11,745.96