You will be graduating in two years and are thinking about your future. You know that...

You will be graduating in two years and are thinking about your future. You know that you will want to buy a house five years after you graduate and that you will want to put down $60,000. As of right now, you have $8,000 in your savings account. You are also fairly certain that once you gradu- ate, you can work in the family business and earn $32,000 a year, with a 5 percent raise every year. You plan to live with your parents for the first two years after graduation, which will enable you to minimize your expenses and put away $10,000 each year. The next three years, you will have to live on your own as your younger sister will be graduating from college and has already announced her plan to move back into the family house. Thus, you will be able to save only 13 percent of your annual salary. Assume that you will be able to invest savings from your salary at 7.2 percent. At what interest rate will you need to invest the current savings account balance in order to achieve your goal? Hint: Draw a time line that shows all the cash flows for years 0 through 7. Remember, you want to buy a house seven years from now and your first salary will be in year 3.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Decide what you must know about (a) your future customers, (b) your future competitors, and (c)...

Decide what you must know about (a) your future customers, (b) your future competitors, and (c) other critical forces in the task environment if you are to be successful.

You are thinking about investing $4,692 in your friend's landscaping business. Even though you know the...

You are thinking about investing $4,692 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,738 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 8% for the year. What should you do?

1. You are thinking about investing $4,615 in your friend's landscaping business. Even though you know...

1. You are thinking about investing $4,615 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,640 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 9% for the year. What should you do? The present value of the return is...

You are thinking about investing your money in the stock market. You have the following two...

You are thinking about investing your money in the stock market. You have the following two stocks in mind: stock A and stock B. You know that the economy can either go in recession or it will boom. Being an optimistic investor, you believe the likelihood of observing an economic boom is two times as high as observing an economic depression. You also know the following about your two stocks: State of the Economy RA RB Boom –2% 10% Recession...

It is early 2015, and you are thinking about buying some Greek bonds. a. You know...

It is early 2015, and you are thinking about buying some Greek bonds. a. You know that Greek bonds have very risky. Why would you still want to buy them, given that there is a high chance of default and non-payment? b. For the following situations, sketch a demand and supply diagram and explain what happens with the 1) price, 2) quantity of bonds sold and 3) the interest rate. Write 1-2 sentences to explain. 1. There are protests in...

You are thinking about moving to Los Angeles to get a job, but want to know...

You are thinking about moving to Los Angeles to get a job, but want to know whether salaries are higher in LA than Sacramento. Luckily you were able to randomly select five people who moved from Sacramento to LA and find out their salaries in each place. Testing at the p<.05 level, are salaries higher in LA than Sacramento? The salaries you collected are as follows (in thousands, with Sacramento the first salary on the left of the parentheses, LA...

You are thinking about moving to Los Angeles to get a job, but want to know...

Suppose you are thinking about getting a puppy and want to know the amount of time...

Suppose you are thinking about getting a puppy and want to know the amount of time people spend caring for puppies. You survey 31 puppy owners and find that the mean amount of time they spend caring for their puppies is 108.0 minutes per day with a sample standard deviation of 17 minutes. Construct a 98% confidence interval for the mean amount of time puppy owners spend on their puppy per day. Interpret the interval. (1pt) Point Estimate: ______ Margin...

A student wants to test whether today’s graduating seniors are just as optimistic about their future...

A student wants to test whether today’s graduating seniors are just as optimistic about their future prospects than in the past. Data from a similar survey given 10 years ago to a national sample of graduating students resulted in a mean of 7.9. A random sample of 16 seniors is asked to evaluate the future job marked on a 10-point scale from 1 (dismal) to 10 (excellent). The scores on the test are: 10, 6, 6, 8, 9, 7, 8,...

(Future value of an ordinary annuity) You are graduating from college at the end of this...

(Future value of an ordinary annuity) You are graduating from college at the end of this semester and after reading the The Business of Life box in this chapter, you have decided to invest $4,100 at the end of each year into a Roth IRA for the next 40 years. If you earn 9 percent compounded annually on your investment, how much will you have when you retire in 40 years? How much will you have if you wait 10...

Subjects