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Time value of money

1. You plan to accumulate $60,000 in your account. Use the information given in each of the following parts and do the necessary calculations.

a) How much are you required to deposit into your account today, if the investment yields a return of 8% and you have 18 years before you reach the target?

b) You have $10,000 in your account. How many years must you save at 10% returns to achieve the targeted amount?

c) You have $12,000 in your account. What investment returns are you looking at if you are given 15 years to reach the target?

2. You plan retire in 30 years from today. How much should you save each year if you can earn 10.5% returns on your investment, and you plan to accumulate $200,000 in your retirement account?

3. You have $10,000 which you would like to deposit for 5 years. First Bank offers a rate of 7.6 percent compounded monthly. Second Bank offers 7.75 percent compounded quarterly.

a) Find out the effective annual rate (EAR) for the two banks.

b) Which bank will you choose and why?


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