You are saving for retirement and you will be saving $1,000 (In real cash flow)

Question

You are saving for retirement and you will be saving $1,000 (In real cash flow) for 20 years every year starting today (I.e. first deposit at t-0 and last deposit at t-19). If the nominal Interest rate Is 10%, Inflation is 6%, how much money Is In your account (In nominal terms) at t-20? Enter only a numerical answer without any dollar signs or commas. For example It the answer Is $55,750.25 enter only 55750.25 A company issues a ten-year bond (face value=$1000) with a coupon rate of 6% paid semi-annually. What is the of the bond right after the 4th coupon payment is made (i.e. 8 years, or 16 coupon payments left to maturity). Assume an APR of 7 8%.

Explanation / Answer

THIS IS A CASE OF CALCULATING THE FUTURE VALUE OF AN ANNUITY.

FV = ANNUITY X FVAF(r%,20)

= $1000 X 57.275 =$57,275.

SO THERE WOULD BE AN AMOUNT OF $57,275 IN THE ACCOUNT AT NOMINAL RATE.

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