Question

A Asset Valuation = Price

B Wealth Accumulation

C Funding – Lump sum funds lump sum

D Funding – Lump sum funds ordinary level annuity

E Funding – Lump sum funds delayed level annuity

F Funding – Ordinary level annuity funds lump sum

G Funding – Ordinary level annuity funds delayed level annuity

H Classify the problem as one of the above types.

Classify the problem as one of the above types.

1. You earn 8% per year on your investments, how much do you have to invest today to “Fund” a payment of $1,000 due in 4 years?

2.  How much would you have to invest today to fund three equal payments in periods 1, 2 and 3 of $100 each if the interest rate is 3%?

3. How much would you have to invest today to fund three payments of $200 each in periods 3, 4 and 5 if the interest rate is 6%?

4. Your child is planning attend summer camp for three months, starting 7 months from now. The cost for camp is $1,000 per month, each month, for the three months she will attend.

If your investments earn 5% APR (compounded monthly), how much must you invest today such that your investment will  grow to just cover the cost of the camp?

5. You need $15,000 in 9 months to settle an overdue tax liability. If your investments earn 6% APR (compounded monthly), how much do you have to invest each month, starting next month, for 4 months, such that your investment will grow to just cover your property tax bill?

6. You’ve had a great year at your job and to reward you, your boss offers you one of two choices:

-A lump sum bonus today of $5,000

- An increase in your monthly salary of $700 for the next 12 months.

If your investments earn 3% APR, compounded monthly, which alternative is worth more (as of today)?

7. You would like to retire 30 years from now. You expect that your retirement will last of 40 years. You want to be able to withdraw $5,000 per month from your retirement account during your retirement.

How much must you invest, starting next month, for the next 30 years to exactly fund your retirement if your investments earn 5% APR, compounded monthly?

Answer 1

1.
Funding – Lump sum funds lump sum

2.
Funding – Lump sum funds ordinary level annuity

3.
Funding – Lump sum funds delayed level annuity

4.
Funding – Lump sum funds delayed level annuity

5.
Funding – Ordinary level annuity funds lump sum

6.
Funding – Lump sum funds ordinary level annuity

7.
Funding – Ordinary level annuity funds delayed level annuity