You currently have a balance of $200,000 in your retirement account. You expect to contribute $7,500 to your retirement account at the end of each year for the next 30 years and your employer will match your contributions; thus, the annual end-of-year contributions to your retirement account will be $15,000. If you earn 8% on your retirement account, how much money will you have in your account when you retire in 30 years?
PART A: Time Value of Money
Please indicate your final answers (rounded to the nearest dollar) in the boxes provided. Unless the problem states otherwise, assume annual
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1. You currently have a balance of $200,000 in your retirement account. You expect to contribute $7,500 to your retirement account at the end of each year for the next 30 years and your employer will match your contributions; thus, the annual end-of-year contributions to your retirement account will be $15,000. If you earn 8% on your retirement account, how much money will you have in your account when you retire in 30 years? |
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2. You have a 4-year-old daughter and want to have $120,000 in her college fund when she starts college. You expect to earn a 7% return on her college-fund investments. If you want to make 14 equal-sized end-of-year deposits into your daughter’s college fund, how much do you need to deposit each year to have $120,000 when she starts college? |
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3. The hedge fund you work for is considering purchasing the rights to all of Shakira’s songs. You estimate that the royalties from the music rights will be approximately $2 million each year for the next twenty years. For ease of computation, assume that these royalty payments will be received at the end of each year. Assuming you can earn an 8% return on other similar-risk investments, what is the maximum amount that you should be willing to pay for the music rights? |
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4. Salty Frozen Yogurt purchases a new refrigeration system for $100,000 on 1/1/21. Salty pays an initial deposit of $40,000 on 1/1/21. They will pay the remaining $60,000 by making equal-sized payments at the end of each year for three years – $20,000 on 12/31/21, $20,000 on 12/31/22 and $20,000 on 12/31/23. If Salty’s borrowing costs are 8%, they should debit the PP&E account for __________ on 1/1/21. |
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