Paula Morduch is considering purchasing a new van for Meals for the Homeless. She expects to buy the van for $ 50,000 four years from today. Solve using a calculator or spreadsheet.
a. If she can invest money at 5 percent compounded quarterly, how much must she invest today? (That 5 percent compounded quarterly would call for use of a rate of 1.25 percent per quarterly period.)
b. Suppose that Morduch believes that Meals for the Homeless can put aside only $ 37,500 today to buy the new van in three years. However, she thinks that she can invest the money at 7.20 percent com-pounded monthly. Determine if she will have the $ 50,000 she will need for the new van.
c. Assuming that Morduch can put aside $ 37,000 today and needs to have $ 50,000 available in four years, what interest rate must be earned? Use quarterly compounding.
d. Assume that Morduch believes that she can only earn 6 percent per year on the money that Meals for the Homeless invests. Assuming monthly com-pounding, how much must be put aside today to provide $ 50,000 in four years?
e. Suppose Meals for the Homeless chooses to put aside money each quarter for four years to have $ 50,000 to buy a van at the end of the three years. Assuming Meals can earn 6 percent compounded quarterly, how much must it put aside each quarter?
f. Morduch is hoping to retire soon. She can put aside $ 175,000 today. She believes that she can earn 6 percent per year, with monthly compound-ing, and wants to have $ 1 million when she retires. How long will that be from now?