Question
-Today is your 30thbirthday and you have a dream of retiring on your 65thbirthday. You want to put aside however much is necessary on your
-Today is your 30thbirthday and you have a dream of retiring on your 65thbirthday. You want to put aside however much is necessary on your 31stthrough 65thbirthdays (35annual payments) to have enough to retire. You've estimated that you will live until you are 90 and you want the first withdrawal to occur on your 66thbirthday, with the last payment occurring on your 90thbirthday. You think that you will need $150,000 per year to spend during retirement. You estimate constant interest rates of 11.25%. Assuming that you currently have $7,500 deposited in your retirement account, how much must you put aside each year in order to have sufficient money to retire at age65?
-John Keene recently invested $5,000 in a project that is promising to return 6.5percent per year. The cash flows are expected to be as follows:
End of year 1= $1000 Cash flow
End of year 2= 950 Cash flow
End of year 3= 875 Cash flow
End of year 4= ??? Cash flow
End of year 5= 850 Cash flow
Note that the 4thyear cash flow is unknown. Assuming the present value of this cash flow stream is$5,000(that is, CF0 = -5000), what is the missing cash flow value (that is, what is the cash flow at the end of the 4thyear)
-You have a $25,000 balance on your credit card. You plan to make monthly payments of $450 until the balance is paid off. The interest rate on your credit card is 17.5% p.a., compounded monthly. A letter in the mail informs you that you are approved for a new credit card and balance transfers are subject to a 9.5% p.a., compounded monthly. How many months sooner will you pay off your bill?
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