Question

If you deposit $20,000 in a bank account paying 5.38%, how much will you have in one year? If you need $24,000 in one year, how much do you have to deposit today?
  

You plan to live very well when you retire in thirty-five years and have calculated that you will require $3,000,000 at that time. If the rate of interest available is 9%, how much do you need to invest today in order to live comfortable during your retirement? What if rates are only 4.5%?

As a recently- graduated finance major embarking on a career in investment banking, you naturally must own a Benz immediately. The car cost $56,640. You also must spend $6,496 on blue pin-stripe suits. Your salary this year is $84,000, and next year it will be $92,000. Your routine living expenses this year will be $68,000. You plan to make up the difference between current income and current consumption by getting a loan at a rate of 14%. You intend to repay the loan, plus interest, in one year. How much will you have left to spend next year?

Answer 1

Future Value=Present Value*(1+rate)^t

Present Value=Future Value/(1+rate)^t

If you deposit $20,000 in a bank account paying 5.38%, how much will you have in one year?
=20000*1.0538
=21076

If you need $24,000 in one year, how much do you have to deposit today?
=24000/1.0538
=22774.72006

You plan to live very well when you retire in thirty-five years and have calculated that you will require $3,000,000 at that time. If the rate of interest available is 9%, how much do you need to invest today in order to live comfortable during your retirement?
=3000000/1.09^35
=146958.201

What if rates are only 4.5%?
=3000000/1.045^35
=642763.3256

As a recently- graduated finance major embarking on a career in investment banking, you naturally must own a Benz immediately. The car cost $56,640. You also must spend $6,496 on blue pin-stripe suits. Your salary this year is $84,000, and next year it will be $92,000. Your routine living expenses this year will be $68,000. You plan to make up the difference between current income and current consumption by getting a loan at a rate of 14%. You intend to repay the loan, plus interest, in one year. How much will you have left to spend next year?
=92000-(56640+6496)*1.14
=20024.96