MUST SHOW ALL WORK, THANKS. 1. John Deposits $500 in a savings account at 5% int

Question

MUST SHOW ALL WORK, THANKS.

1. John Deposits $500 in a savings account at 5% interest for 5 years. At the end of the period how much will he have if no withdrawals are made

2. Disney promised Fred a $20,000 retirement account at the end of 25 years of service. Assume a 10% is the best interest can earn on his savings. What is the present value of his retirement bonus?

3. Assume you best friend promised to pay you money indefinitely for $2,500 at a rate of 24%. What is the value of the future payments

4. You have decided that you will retire at the age of 60. If you are now 25 and would like to collect equal payment at your retirement, how much your future yearly collections if you start investing at the age of 25, $7,500 earning a fixed market interest of 10%

5. If you require $6,000 5 years from now, how much deposit must you make today assuming 4% interest?

Explanation / Answer

1) Future value = Present value * (1 + i)n

i = 5%; n = 5 years; present value = $500

At the end of the period how much John will have = 500 * (1 + 0.05)5 = $638.14

2)Future value = $20,000

i = 10%; n = 25 years;

present value = future value / (1 + i)n

present value = 20000/(1 + 0.10)25 = $1845.92

3) Indefinite future value = 2500/0.24 = $10416.67

4) Yearly investment = $7500 rate = 10%

n = 60 - 25 = 35 years

Future value at 60th year = 7500 * (1 + 0.10)35 = $201768.28

Future yearly collection = $201768.28/35 = $6021.95

5) Future value = $6,000

i = 4%; n = 5 years;

present value = future value / (1 + i)n

present value = 6000/(1 + 0.04)5 = $4931.56

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