An investor wants to save for retirement in 40 years. She evaluates two plans: Plan 1: Invest

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Question:

An investor wants to save for retirement in 40 years. She evaluates two plans:

Plan 1: Invest $6,000 per year for 40 years.

Plan 2: Wait 10 years and then invest $9,000 per year for 30 years.

If the rate of return is 5% per year, which plan will give her the most for retirement? How much will she have?

2. A home buyer takes out a mortgage for $180,000 to purchase a home. The mortgage rate is 4% per year for 30 years and he will make monthly payments. How much will the monthly payment be? Over the life of the loan, how much in interest doe he pay?

3. A home buyer decides she can afford a monthly mortgage payment of $1,500 per month and decides to take out a 15-year mortgage. The mortgage rate is 3.25%. What is the maximum mortgage amount?

4. You are wanting to drive a new car. The dealership offers you a lease payment for the car of $429 per month for a 36-month lease. The lease agreement states the interest rate on the lease is 6.5% and the first payment is made when you drive the car off the lot. What would the equivalent loan amount for the lease be?

5. You believe that if you retired today, you would need a portfolio value of $1,500,000. However, you plan to retire in 35 years and you think the cost of living (living expenses) will increase by 3% per year.

a.) What is the portfolio value needed in 35 years if you want to retire at the same standard of living?
b.) Based on the amount in part a, how much do you have to invest annually at a rate of 7% to reach your retirement goal?

6. An investment will pay you $50,000 per year for a period of 25 years and the required rate of return is 3%. What is the value of the investment if the first payment occurs 20 years from today?

7. An investor has savings of $100,000 in an account and will add $10,000 per year to an account that earn 6% annually. How many years will it take for the account to reach $2,000,000?

8. Your company offers a retirement savings plan. Each month, $600 is added to your account. After 20 years, the account is worth $325,000. What annual rate of return did you earn?