Question
1) You have decided to endow Faculty of Business, stanbul University with a scholarship. It is expected to cost $4,000 per year to attend the
1) You have decided to endow Faculty of Business, stanbul University with a scholarship. It is expected to cost $4,000 per year to attend the university into perpetuity. You expect to give the university the endowment in 12 years and will accumulate it by making equal annual (end-of-year) deposits into an account. The rate of interest is expected to be 12 % for all future time periods.
a. How large must the endowment be?
b. How much must you deposit at the end of each of the next 12 years to accumulate the required amount?
2)While vacationing in Florida, John Kelley saw the vacation home of his dreams. It was listed with a sale price of $171,000. The only catch is that John is 37 years old and plans to continue working until he is 65. Still, he believes that prices generally increase at the overall rate of inflation. John believes that he can earn 7 % annually after taxes on his investments. He is willing to invest a fixed amount at the end of each of the next 28 years to fund the cash purchase of such a house (one that can be purchased today for $171,000 ) when he retires.
a. Inflation is expected to average 2 % a year for the next 28 years. What will John's dream house cost when he retires?
b. How much must John invest at the end of each of the next 28 years to have the cash purchase price of the house when he retires?
c. If John invests at the beginning instead of at the end of each of the next 28 years, how much must he invest each year?
3)To supplement your planned retirement in exactly 45 years, you estimate that you need to accumulate $200,000 by the end of 45 years from today. You plan to make equal, annual, end-of-year deposits into an account paying 6 % annual interest.
a. How large must the annual deposits be to create the $200,000 fund by the end of 45 years?
b. If you can afford to deposit only $760 per year into the account, how much will you have accumulated by the end of 45 years?
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