1. Calculated the future value of a single amount of $10,000 earning 9% per year

Question

1. Calculated the future value of a single amount of $10,000 earning 9% per year compounded quarterly for two years.

2. On Kathy's 35th birthday, her insurance company told her she is expected to live until age 85. She wants to retire at age 60. Long term interest rates suggest that her opportunity cost of cash approximates the 20-year treasury bond rate of 8% per annum. Many of her expenses will be eliminated by then, so she estimates she will only need 15,000 per year to live comfortably. Kathy needs 45,000 additional annually from age 70 through age 88. What is the present value that Kathy will need at 60?

Explanation / Answer

Answer to Question 1:

Amount Invested = $10,000
Annual Interest Rate = 9%
Quarterly Interest Rate = 9%/4 = 2.25%
Period = 2 years or 8 quarters

Future Value = Amount Invested * (1 + Interest Rate)^Period
Future Value = $10,000 * (1 + 0.0225)^8
Future Value = $10,000 * 1.19483
Future Value = $11,948.30

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.