Question: Could someone please take their time to explain both these questions to me? Q.1: You could deposit the following cash flows in years t=1 until
Could someone please take their time to explain both these questions to me?
Q.1: You could deposit the following cash flows in years t=1 until t=5 into a savings account: 1,000; 3,000; 9,000; 5,000; 2,000. Call this savings strategy 1. Alternatively, you could deposit one single cash flow stream now (t=0) into a savings account. Call this savings strategy 2. How large should this latter cash flow stream be to result in the same final value as under savings strategy 1? Assume an annual interest rate of 10% for both savings strategies. A) Smaller than 14,000 B) Between 14,500 and 15,000 C) Larger than 15,000 D) Between 14,000 and 14,500
Q.2: With an eye towards your retirement, you decide to save yearly one-quarter of your disposable income for the coming 30 years into a savings account with an annual interest rate of 3%. Assume for sake of simplicity that your annual income stays constant until retirement. How high should your current annual income be such that your retirement plan reaches a final value of 1,000,000? This amount comes closest to A) 83,000 B) 81,000 C) 82,000 D) 84,000
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