11)Suppose you deposit $18,000 into an account today that earns 6% interest per year, and you do not withdraw the money for 21 years. What will be the balance in the account 21 years from today?
12)Suppose you receive $10,000 on your 20th birthday. You invest it in one or more mutual funds that you expect will have an average annual rate of return of 5.0 percent. How much would your investments be worth on your 65th birthday? Assume no inflation.
13)Imagine that instead of depositing that $10,000 into a mutual fund, you deposited it into a savings account at your local bank, which offers a 1% annual interest rate. How much would you have at retirement under this condition?
14An investment promises you a single cash flow of $40,000 25 years from today. If the annual discount rate is 4%, what is the investment worth today?
15)Suppose I offer you money. I will give you either $200 today or $5,000 twenty years from today. If the discount rate over the next 20 years is 9%, which should you choose? Why?
1) How much annual income do you think you’ll need when you retire (excluding Social Security, and assuming zero inflation)? Hint: think of it as an annuity starting the year you retire.
20). How much in total savings would you probably need at your retirement date to provide that annual income for the rest of your life? Hint: think of it as the present value you would need to have when you retire.
3) Assuming you have no savings now, how much would you need to save each year to get to that savings amount? What assumptions are you making about expected rates of return? Hint: think of that retirement target as a future value toward which you must save each year; it’s similar to a loan amortization.
Principal of Management
