1) If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit now?

2) You are 22 years old and you want to save and invest for the future. You decide to set apart $10 every month for the next 10 years to build your financial base. Your younger sister thinks differently and wants to do something else. She decides to wait for 10 years and start investing $100 for 5 years and then stop completely. Assume the interest rate is the same at 5%.

Evaluate both your decision and your sister’s. Show calculations for both yourself and your sister.

1. Who gains more in the long run? What will be the difference between yours and your sisters?
2. Whose financial position will be more stable at the end of the respective time periods? What are the relative risks that you and your sister will be exposed to? Discuss.
3. What lessons do you learn? Identify any 3, clear and specific ones.
4. What are the reasons for the differences in your comparative answers?

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1 Formula for compound interest can be used to calculate principal amount as A P x 1 i n P A1 i n Where P principle amount A amount after maturity 100... View the full answer