Chapter 5.3, Problem 51E

Answer the following questions using complete sentences and your own words.

■ HANDS ON

Think of something that you would like to be able to afford but cannot—perhaps a car, boat, or motorcycle. In this exercise, you will explore how to make that unaffordable dream a realistic goal.

a. Just what is it that you would like to be able to afford?

b. Determine an appropriate but realistic date for making the purchase. Justify your date.

c. Do some research and determine how much your goal would cost currently. Cite your sources.

d. Do some web research and determine the current rate of inflation. Inflation rate information is readily available on the web. Cite your sources.

e. Use the results of parts (b), (c), and (d), as well as either the simple or compound interest formula, to predict how much your goal will cost in the future.

f. Discuss why you chose to use the simple or compound interest formula in part (e).

g. Go to the web sites of four different banks and determine the current interest rate available for an annuity of an appropriate term.

h. Determine the necessary annuity payment that will allow you to meet your goal. If necessary, alter the date from part (b).