Question

Calculating present and future values

Use future or present value techniques to solve the following problems.

1. If you inherited $60,000 today and invested all of it in a security that paid a 6 percent rate of return, how much would you have in 20 years? Round the answer to the nearest cent. Round FV-factor to three decimal places.
   Calculate your answer based on the FV-factor.

   $  

   
   
   Calculate your answer based on the financial calculator.

   $  

   
   
2. If the average new home costs $225,000 today, how much will it cost in 8 years if the price increases by 3 percent each year? Round the answer to the nearest cent. Round FV-factor to three decimal places.
   Calculate your answer based on the FV-factor.

   $  

   
   
   Calculate your answer based on the financial calculator.

   $  

   
   
3. You forecast that in 7 years it will cost $246,000 to provide your child a 4-year college education. Will you have enough if you take $79,000 today and invest it for the next 7 years at 6 percent? Round the answer to the nearest cent. Round FV-factor and FVA-factors to three decimal places.
   -Select-YesNo , you will have approximately

   $  

   -Select-moreless than your estimate of $246,000.
   
4. If you can earn 9 percent, how much will you have to save each year if you want to retire in 40 years with $1.8 million? Round the answer to the nearest cent. Round FVA-factor to three decimal places.
   Calculate your answer based on the FVA-factor.

   $  

   
   
   Calculate your answer based on the financial calculator.

   $  

Answer 1

a)We are given the following information:

PV	$            60,000.00
r	6.00%
n	20
frequency	1

We need to solve the following equation to arrive at the required FV

So the FV is $192428.13

TI BA II Plus Financial calculator inputs: PV = -60000, N = 20, I/Y = 6, PMT = 0, CPT FV

FV = 192428.1283

b) We are given the following information:

PV	$        2,25,000.00
r	3.00%
n	8
frequency	1

We need to solve the following equation to arrive at the required FV

So the FV is $285023.27

TI BA II Plus Financial calculator inputs: PV = -225000, N = 8, I/Y = 3, PMT = 0, CPT FV

FV = 285023.2683

c)We are given the following information:

PV	$            79,000.00
r	6.00%
n	7
frequency	1

We need to solve the following equation to arrive at the required FV

So the FV is $118786.79, which is lower than 246000 and therefore you will not have enough

TI BA II Plus Financial calculator inputs: PV = -79000, N = 7, I/Y = 6, PMT = 0, CPT FV

FV = 118786.7905

d)We are given the following information:

r	9.00%
n	40
T	1
FV	$      18,00,000.00

We need to solve the following equation to arrive at the required PMT

So the annual payment is 5327.30

TI BA II Plus Financial calculator inputs: PV = 0, N = 40, I/Y = 9, FV= 1800000, CPT PMT

PMT= -5327.2966