Time Value of Money KEY

Time Value of Money KEY - TIME VALUE OF MONEY KEY 1 If...

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TIME VALUE OF MONEY KEY 1. If Leslie wanted to go to her college reunion in 6 years and feels she needs to have \$5,000 to make the trip, how much would she need to save annually if she could earn 5% after taxes? FV Annuity 6 years @ 5% = 6.8019 \$5,000 ÷ 6.8019 = \$735 annual savings 2. This is your lucky year! You have won the lottery and will be paid \$10,000/year for the next 10 years. Assuming you could earn 6% after taxes on you investments, how much are your lottery winnings worth today? PV Annuity 10 years @ 6% = 7.3601 \$10,000 X 7.3601 = \$73,601 3. If the current cost of a college education is \$12,000/year and the rate inflation for college costs is 6% after taxes per year, how much will one year of college cost in 10 years? FV Lump Sum 10 years @ 6% = 1.7908 \$12,000 X 1.7908 = \$21,490 OR PV Lump Sum 10 Years @ 6% = 0.5584 \$12,000 ÷ 0.5584 = \$21,490

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4. Jack (age 45) currently has \$75,000 vested in his retirement account. He is planning to contribute \$6,000 a year to this account at the end of each year. If the account averages a 9%
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Time Value of Money KEY - TIME VALUE OF MONEY KEY 1 If...

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