volora
Mar 21, 2009, 05:34 PM
I'm trying to figure out this problem but so confused and I have no idea how to start. Any help I would really appreciate.
1. Harriet wishes to save money to provide for her retirement. Beginning one year from now she will begin depositing the same fixed amount each year for the next 20 years into a retirement savings account. In exactly seven years from now she will withdraw $10,000. Starting one year after making her final deposit, she will withdraw $135,000 annually for each of the following 15 years (i.e. she will make 15 withdrawals in all). Assume that the interest rate is 9% p.a. over both the depositing period and the withdrawal period. In order for Harriet to have sufficient funds in her account to fund her retirement, how much should she deposit annually?
2. What is the future value at the end of year 15 of depositing $3,000 today, $5,500 at the end of years 1, 2, 3 and 4, $4,000 at the end of years 5, 6 and 7 and $7,500 at the end of years 8, 9 and 10 into an account that pays 14% p.a.
For number 3 I think I got the answer but not sure if it's right or not. Basically I got two different answers.
3. Assume that I want to have $10,000 in my savings account exactly 3 years from today. I just deposited $2,500 into the account (that is, at the end of year 0) and I plan to deposit $3,500 into the account exactly two years from today (that is, at the end of year 2). I plan to make another deposit into the account exactly one year from today, but I am not sure how much that amount must be to achieve my goal of having $10,000 in the account exactly 3 years from today. If the interest rate I earn on money deposited in this account is 4.25% p.a. how much must I deposit at the end of year 1 (given my initial and other planned deposit) to achieve my goal?
Answer: 6,481.24 or 10,285.06.
1. Harriet wishes to save money to provide for her retirement. Beginning one year from now she will begin depositing the same fixed amount each year for the next 20 years into a retirement savings account. In exactly seven years from now she will withdraw $10,000. Starting one year after making her final deposit, she will withdraw $135,000 annually for each of the following 15 years (i.e. she will make 15 withdrawals in all). Assume that the interest rate is 9% p.a. over both the depositing period and the withdrawal period. In order for Harriet to have sufficient funds in her account to fund her retirement, how much should she deposit annually?
2. What is the future value at the end of year 15 of depositing $3,000 today, $5,500 at the end of years 1, 2, 3 and 4, $4,000 at the end of years 5, 6 and 7 and $7,500 at the end of years 8, 9 and 10 into an account that pays 14% p.a.
For number 3 I think I got the answer but not sure if it's right or not. Basically I got two different answers.
3. Assume that I want to have $10,000 in my savings account exactly 3 years from today. I just deposited $2,500 into the account (that is, at the end of year 0) and I plan to deposit $3,500 into the account exactly two years from today (that is, at the end of year 2). I plan to make another deposit into the account exactly one year from today, but I am not sure how much that amount must be to achieve my goal of having $10,000 in the account exactly 3 years from today. If the interest rate I earn on money deposited in this account is 4.25% p.a. how much must I deposit at the end of year 1 (given my initial and other planned deposit) to achieve my goal?
Answer: 6,481.24 or 10,285.06.