1. People can become millionaires in their retirement years quite easily if they start saving early in employer 401(k) or 403(b) programs (or even if their employers dont offer such programs). Demonstrate the growth of a $250 monthly contribution for 40 years earning 9 percent APR.

2.When you discount multiple cash flows, how does the future period that a cash flow is paid affect its present value and its contribution to the value of all the cash flows?

3.How can you use the present value of an annuity concept to determine the price of a house you can afford?

4.Since perpetuity payments continue for ever, how can a present value be computed? Why isnt the present value infinite?

5.

Assume that you are 21 years old.

You would like to retire at age 65.

You would like to have an income throughout retirement that is equivalent to $65,000 in todays dollars during retirement.

You believe that you should plan to live until age 99.

You believe that inflation will average 3% during your savings years.

You believe that you can earn an average return on your investments of 8% during your savings years.

You believe that you will earn an average return of 5% on your investments during your retirement years.

Questions:1. What lump sum in needed at age 65 to retire?

2. How much will you need to save annually to accumulate that amount of money?