Darlene-GBS132_Lesson_2_PresentFuture_Value_ExerciseTemplate-Final

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Rio Salado Community College *

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132

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Finance

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Jun 5, 2024

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docx

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Uploaded by ProfessorMink4177

GBS132 Lesson 2 Exercise-Present/Future Value Template Name Darlene Peralta Instructions: 1. Use future or present value techniques to solve the following problems. 2. Be sure to show your work for all problems. Present/Future Value Problems 1. If you invest $20,000 today at an interest rate of 6%, how much will you have: A. In 10 years? B. In 20 years? C. in 35 years? Answers: a. 20,000(1+0.06)^10 b. 20,000(1+0.06)^20 c. 20,000(1+0.06)^35 20,000(1.791) 20,0000(3.207) 20,000(7.686) $35,820 $64,140 $153,720 2. Juan will be retiring 35 years from now and would like to have the same amount of income that he currently lives on. Juan currently makes $85,000 a year and inflation is expected to grow at 2% a year for the next 35 years. How much annual income will Juan need after inflation? Answer: 85,000(1.02)^35 85,000(1.99) = $169,990.61 3. LaTonya wants to pay for Andrew to go to college 18 years from now. She knows the Page 1
GBS132 Lesson 2 Exercise-Present/Future Value Template current cost of a state school is $26,500 a year. Assuming she wants to pay for 4 years of college for Andrew, and college tuition is increasing at 6% a year, how much will she need to save by the time he enters college? Answer: year1 year2 year3 year4 26,500(1.06)^1 26,500(1.06)^2 26,500(1.06)^3 26,500(1.06)^4 $28,090 $29,826 $31,535 $33,443 28,090+29,826+31,535+33,443= $122,894 4. Dimitri's grandfather starts a 529 college fund for him by gifting him $15,000. If the account can earn a 7% annual return for 10 years, how much will it be worth? Answer: 15,000(1+0.07)^10 15,000(1.967) $29,505 5. Mailani has decided that she needs $100,000 a year to live on when she retires in 25 years. She figures that she can live off of withdrawing 4% a year from her retirement funds to generate the income she desires which would require that she have $2,500,000 at retirement. How much will Mailani have to save each year to reach this goal assuming an 8% annual return? Answer: 2,500,000*.08/(1+.08)^25-1 200,000/5.8484 = $34,197.38 Page 2
GBS132 Lesson 2 Exercise-Present/Future Value Template 6. If the average new home costs $275,000 today, how much will it cost in 10 years if the price increases by 5% each year? Answer: 275,000(1+0.05)^10 275,000(1.05)^10 275,000(1.6288) 447,920 7. You think that in 12 years, it will cost $240,000 to provide your child with a 4-year college education. If you take $100,000 today and invest it for the next 12 years at 6% will you have enough? Answer: 100,000(1+0.06)^12 100,000(1.06)^12 100,000(2.0121) $201,210. No you will not have enough 8. Paul wants to pay for a new car in 5 years. He has decided to set a savings goal of Page 3
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