C. Find the answers to parts a and b above assuming that the rate is 7%. 13. (FV annuity) Michael is considering his consumption habits, trying to figure out how to save money. He realizes that he could save $10 every week by ordering regular coffee instead of latte at the local coffee shop. Since he buys a cup of coffee every work day (5 days a week), every week (52 weeks a year), this works out to be quite a sum. a. If Michael is 25 today and retires at age 65, how much money will he have accumulated from savings on coffee versus latte? Assume that the weekly interest rate is 0.1% and that the savings occur at the end of each week. b. Michael was astounded at the answer to part a of this problem. He realized he had more wasteful habits, and he made a list of possible savings to see how much richer he could be at age 65. What are the rewards to Michael's frugality? 10 Exercise 13 b 11 Weekly interest rate 12 A 0.10% D B C FFV($B$11,52,-B15) 13 Item Weekly Yearly savings savings Future value at age 65 14 15 Latte versus regular coffee 10.00 533.48 16 Deli versus brown bag lunch 25.00 17 Excess alcohol 10.00 18 Cigarettes 11.00 19 Candy 5.00 20 Excess junk food 10.00 21 Cell phone (chat vs. needed calls) 6.00 22 Wasted groceries 7.00 23 Restaurant: fast food vs. eat at home 30.00 24 Wasted energy: heat, AC, lights 12.00 5 Movies versus books 10.00 5 Expensive cable TV 13.00 Wasteful spending at mall Money saved by time Michael is 65 Wasted gasoline on excessive trips, etc. 8.00 10.00 167.00 1 2 Exercise 13 a A B MICHAEL SAVES MONEY 3 Weekly interest rate 4 Weekly latte savings 5 Years until age 65 6 Weeks until age 65 7 Savings at age 65 (future value) 8 9 0 0.10% 10.00 40