Using the time value of money Sharon wants to take the next five years off work
ID: 2480718 • Letter: U
Question
Using the time value of money Sharon wants to take the next five years off work to travel around the world. She estimates her annual cash needs at $34,000 (if site needs more, site will work odd jobs). Sharon believes she can invest her savings at 8% until she depletes her funds. Requirements How much money does Sharon need now to fund her travels? After speaking with a number of banks, Sharon learns she will only be able to invest her funds at 6%. How much does she need now to fund her travels?Explanation / Answer
(1)
Present value (PV) of money required = $34,000 x PVIFA(8%, 5) = $34,000 x 3.9927 = $135,752
(2)
PV = $34,000 x PVIFA(6%, 5) = $34,000 x 4.2124 = $34,000 x 143,222
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