1. One of your Intermediate Financial Goals is to have $12,000 in our savings ac

Question

1. One of your Intermediate Financial Goals is to have $12,000 in our savings account upon graduation four years from now. You have a relative that will give you a lump-sum amount of money today but is unwilling to offer the $12,000. If you anticipate interest rate of returns to average 4% annually, what lump sum amount do you request from your relative?

2. What is the present value of a $5,000 bonus you are to receive one year from now due to achieving sales objectives if your current investment rate is 6%?

3. If you deposit $10,000 in a savings account earning annual interest of 4%, what is the future value of this deposit 20 years later?

4. You received $2,000 as a tuition grant and you can spend it toward tuition, fees, books, etc. Yoour financial goal is to have $3,000 in 7 years to apply towards a graduate degree. Based on goals, what investment rate do you need to achieve on an annual basis in order to have $3,000 in 7 years?

5. You want to double Yoour investment nine years from now. Approximately, what is the average annual investment rate that is required for this goal?

Explanation / Answer

    1.0 Discount Rate for 4 years @4% =1/1.04^4=                    0.8548 Present value of $12000 required after 4 years=12000*0.8548=                10,257.7 So I shall request for lumpsum amount of $ 10,257.70 from my realtive.     2.0 Discont factor @6% for 1 year =1/1.06 So PV of $5000 receivable in 1 year =5000/1.06= $            4,716.98     3.0 Compounding factor @4% for 20 years=1.04^20=                      2.191 Principal amount =                10,000.0 Maturity value after 20 years=                21,911.2     4.0 Princpal amount                   2,000.0 Required maturity value in 7 years                   3,000.0 Compunding factor                             1.5 FVIF factor 1.5 in 7 years have interest rate= 5.96% So required investment rate =5.96%     5.0 For doubling money the FVIF factor is 2 FVIF factor 2 in 9 years has ineterst rate =8% So required ineterst rate =8% approx.

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