CHAPTER $4$ SITUATION

There are two brothers; Percy and Liam. They both have the goal to retire at the age of $65$ with one million dollars in their respective bank accounts. They have been talking to people familiar with the stock market, who assure them that over long periods of time they will be able to earn an $8$$ return by investing.

LUMP SUMS

Percy always has been ahead of the curve. He had multiple part$-$time jobs in high school, and even started a small business in college. He decides that he is going to make a one$-$time payment to his retirement account at the age of $25,$ and then never touch it again. How much will he have to invest to reach his goal?

Figure Sense: A useful figure sense habit when trying to solve a work problem is to answer the questions: $(1)$ What do $/$ know? This helps you organize the information in the problem. $(2)$ What do $t$ want to accomplish? This helps insure that you understand the required result. $(3)$ What do$?$ aced to do to go from what I know to what I want to accomplish? This helps you think about the steps you need to take to solve the problem.

Another useful figure sense habit is to onswer the question: What do I expect the answer to be$?$ Before you solve the problem. Then after solving the problem you can ask: Is the answer I calculated consistent with what I expected. If your answer is inconsistent with what you expected, you need to check your answer because it might be wrong.

Figure Sense:

What do $!$ know?

What do I want to accomplish?

What do I expect the answer to be$?$

How do I go from what I know to what I want to accomplish?

Is my answer consistent with what I expected?

Percy's brother, Liam, is slow to make progress in his life. He decides to use Percy's tactic of doing a one$-$time payment, except he is going to wait until he is $35.$ How much more is Liam going to have to invest than Percy?

Figure Sense:

What do $/$ know?

What do I want to accomplish?

What do I expect the answer to be$?$

How do I go from what I know to what I want to accomplish?

Is my answer consistent with what I expected?

When the $,$increase$($s$),$ the future value of my investment will also increase.

Circle all the choices that fit

a$.)$ rate of return

b$.)$ amount of time until maturity

c$.)$ present value of my investment