Since attending college at SAU and taking the Personal Finance course, Jodie has been saving regularly and

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Question:

Since attending college at SAU and taking the Personal Finance course, Jodie has been saving regularly and has accumulated $4,000 in savings and investments. Jodie wants to take a trip to Europe to celebrate when she graduates. She thinks she will need $6,000 to take her trip.

1. Based on the above information, if Jodie can earn 8% on her money, how much will her $4,000 be worth in 2 years? Will she have met her $6,000 goal or will she need more money, and if so, how much more?

2. What if Jodie can earn 12% on her money? How much will she have and will she meet her goal in two years?

3. What if instead of depositing money into a savings account and then investing after she accumulated a lot of money Jodie began investing $1,750 a year each year in an investment that earned her a 10% return? How long would it take her to reach her goal of $6,000?

4. Twins Max and Mason, both 24 (obviously!), graduated from SAU and began working in their family’s business. The first year, Max began putting $5,500 per year in an individual retirement account (IRA) and contributed to it for 12 years. After 12 years, he made no further contributions until he retired at age 65. Mason did not start making contributions until he was 35, but he began making $5,500 per year contributions and continued to make contributions until he retired at age 65. Assuming both Max and Mason receive a 9% return per year, how much will Max have at retirement? How much did he contribute in total? How much will Mason have at retirement? How much did he contribute in total? (There are 4 questions to answer here!!)

5. Find the future value of an annuity of $3,500 per year for 20 years if the interest rate is 8%.

6. You are offered an annuity that will pay you $50,000 per year for 15 years (the first payment will occur one year from today). If you feel that the appropriate discount rate is 10%, what is the annuity worth to you today? (hint: you’re solving for PV)

7. If you want to have $2,500,000 in an account in 30 years, how much do you need to invest annually if you can earn an 9% average return on your investment?

8. At what annual interest rate must $20,000 be invested so that it will grow to be $400,000 in 20 years?

9. If you wish to accumulate $200,000 in 15 years, how much must you deposit today in an account that pays an annual interest rate of 10%?

What if you were able to contribute $2,500 per year. How much would you need to deposit today to reach your goal with that contribution?

10. Joe Smith’s employer offers its employees a two month unpaid vacation after 7 years of employment. Joe would like to go to New Zealand for his time off but has just started working for the firm. He estimates that his trip will cost $20,000. He plans to make an annual deposit of $2,500 (1 year from today) and the account will pay him a rate of 9% annually. Will this deposit be enough to pay for his trip? If not, how much would he need to deposit each year in order to have enough money?