Chapter 6 Part 2 Example 1: Assume you plan to buy a new car in 5 years and you think it will cost $20,000 at that time. What amount must you invest today in order to accumulate $20,000 in 5 years, if you can earn 8% interest compounded annually? Example 2: Assume that your rich uncle decides to give you $2,000 for a trip to Europe when you graduate from college 3 years from now. He proposes to finance the trip by investing a sum of money now at 8% compound interest that will provide you with $2,000 upon your graduation. The only conditions are that you graduate and that you tell him how much to invest now. Example 3: Computation of the Number of Periods The Village of Somonauk wants to accumulate $70,000 for the construction of a veteran's monument in the town square. At the beginning of the current year, the Village deposited $47,811 in a memorial fund that earns 10% interest compounded annually. How many years will it take to accumulate $70,000 in the memorial fund? Example 4: Advanced Design, Inc. needs $1,070,584 for basic research 5 years from now. The company currently has $800,000 to invest for that purpose. At what rate of interest must it invest the $800,000 to fund basic research projects of $1,070,584, 5 years from now? Example 5. If there is one investment of $10,000 at the end of each year, and annual interest rate is 2%, what will be the fund balance in 4 years? Example 6. Hightown Electronics deposits $75,000 at the end of each 6-month period for the next 3 years, to accumulate enough money to meet debts that mature in 3 years. What is the future value that the company will have on deposit at the end of 3 years if the annual interest rate is 10%? Example 7: Assume that $1 is to be received at the end of each of 5 periods, as separate amounts, and earns 5% interest compounded annually. Example 8: What is the present value of rental receipts of $6,000 each, to be received at the end of each of the next 5 years when discounted at 6%? Example 9: Jaime wins $2,000,000 in the state lottery. She will be paid $100,000 at the end of each year for the next 20 years. How much has she actually won? Assume an appropriate interest rate of 8%. Example 10: You wish to withdraw $10,000 at the end of each of the next 4 years from a bank account that pays 12% interest compounded annually. How much do you need to invest today to meet this goal