1. Mrs. Beach wants to invest a lump sum of money today to have $100,000 when sh
ID: 2622587 • Letter: 1
Question
1. Mrs. Beach wants to invest a lump sum of money today to have $100,000 when she retires at 65 (she is 40 today). a. How much of a deposit would she have to make if the interest rate on the C.D. was 5%? b. What would Mrs. Beach have to deposit if she were to use high quality corporate bonds an earned an average rate of return of 7%. c. What would Mrs. Beach have to deposit if she were to use common stock and earned an average rate of return of 11%. d. What type of a problem is this? ___________
Explanation / Answer
a. Deposit today = $100,000 / (1 + 5%)25
= $29,530.28
b. Deposit today = $100,000 / (1 + 7%)25
= $18,424.92
c. Deposit today = $100,000 / (1 + 11%)25
= $7,360.81
d. Time value of money
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