Question

1. Suppose your retirement account pays 9% APR compounded monthly.

   a. What size nest egg do we need in order to retire with a 25 year annuity that yields $500 per month?
2. b What size nest egg do we need in order to retire with a 25 year annuity that yields $700 per month?

1. You estimate you can save $150 per month for a down payment on a car. You hope to purchase the car in 24 months. You invest this in an account that pays 6% compounded monthly.

   1. How much will you have in the account at the end of 24 months?

   2. How much more would you have at the end of 24 months if you deposited $200 per month?

   3. What would you need to deposit each month to have $8,000 available for a down payment?

2. You estimate you can save $150 per month for a down payment on a car. You hope to purchase the car in 24 months. You invest this in an account that pays 6% compounded monthly.

   1. A. How much will you have in the account at the end of 24 months?

   2. B. How much more would you have at the end of 24 months if you deposited $200 per month?

   3. C. What would you need to deposit each month to have $8,000 available for a down payment?

1. You really want to retire a millionaire. You would like to retire at age 65 and have $1,000,000 saved at that time. You are 21 years old now and you find an account that pays 8% compounded monthly in which you can make monthly payments.

   A. What should your monthly payment be in order to have this $1,000,000 by the time you are 65?
2. B. What is the total amount you paid into this account over the years?
3. C. Compare this with a lump sum deposit. In other words, what is the present value of $1,000,000 at an APR of 8% compounded monthly? (No monthly deposits, only a one time deposit at age 21 that will be worth $1,000,000 at age 65.)

Answer 1