TVM--annuities - Time value of money—annuities 5. Per...

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Time value of money—annuities 1. You anticipate that you will need $10,000 to travel to Spain in 8 years. However, inflation will make your trip cost more. Inflation is currently running at 1.88%. Controlling for inflation, how much must you deposit each year in an account earning 6% annual interest to have the money when you need it? 2. If you deposit $2,000 in an individual retirement account (IRA) at the end of each year and it grows at a rate of 17%, but inflation is 1.88%, how much will you have in your IRA at the end of 40 years? 3. What is a payment of $5,000 received at the end of each of the next 5 years worth to you today, given the appropriate discount rate of 6%? 4. Joe won the Manilla lottery which offers payments of $15,000 for the next 10 years. Joe does not want to wait that long for his money. He is willing to take a settlement instead. At an annual discount rate of 7%, what would Joe’s settlement amount be today?
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Unformatted text preview: Time value of money—annuities 5. Per their divorce decree, Brittany is to pay Jason $75,000 per year for the next 20 years. Brittany would like to pay Jason off in a lump sum instead. Assuming a 5% discount rate, what is the lump sum amount that equals this stream of future payments? 6. Alma is borrowing $12,000 for a used car. The interest rate she has been quoted is 5.5% APR. She anticipates a loan for 4 years. Calculate Alma’s monthly payment for this loan. 7. Brad graduated from ISU with $40,000 in student loans. He has consolidated his loans at 2.5%. He will be making payments for the next 15 years. How much are Brad’s monthly loan payments? 8. You would like to have a complete makeover by the time you are 50. You are currently 40 years old. Your makeover will cost $30,000. How much do you need to put away at the end of each year at 12% to have enough money for your transformation?...
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This note was uploaded on 06/06/2011 for the course HACE 3200 taught by Professor B during the Spring '09 term at UGA.

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TVM--annuities - Time value of money—annuities 5. Per...

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