Finance

[seejday1228]

1) What sum of money should be set aside right now in order to provide an income of $2,000 a month for 5 years. The first payment is to be made in 4 years and interest is 6% compounded monthly.

2) A smart student wants to start saving for retirement. If she deposits $25,000 a year beginning at age 21 and ending at age 40 how much will be in the account when she reaches 65? Interest is 4%.




I am having a lot of difficulty coming up with solotions to these two problems what steps do I take and formulas do I use?

 

[Deleted member 4993]

1) What sum of money should be set aside right now in order to provide an income of $2,000 a month for 5 years. The first payment is to be made in 4 years and interest is 6% compounded monthly.

Suppose you put aside "x" dollars now.

1) 4 years later what is going to be its value (x[sub:yfkdfwpl]4[/sub:yfkdfwpl])?

2) The above money will now be spent in 5 years - withdrawing 2000 per month

x[sub:yfkdfwpl]4[/sub:yfkdfwpl](1.005)[sup:yfkdfwpl]60[/sup:yfkdfwpl] = 2000*(1.005[sup:yfkdfwpl]60[/sup:yfkdfwpl] - 1)/0.005

Now find 'x'
2) A smart student wants to start saving for retirement. If she deposits $25,000 a year beginning at age 21 and ending at age 40 how much will be in the account when she reaches 65? Interest is 4%.

Please show us your work, indicating exactly where you are stuck - so that we know where to begin to help you.




I am having a lot of difficulty coming up with solotions to these two problems what steps do I take and formulas do I use?

 

[quameka]

Jean will receive $8,500 per year for the next 15 years from her trust. If a 7% interest rate is applied, what is the current value of the future payments? Describe how you solved this problem, including which table (for example, present value and future value) was used and why

I believe the answer is $228548.46 . I used an annuity calculator. I do not know what formula was used to get the answer or why. The text book is too complicated for me. This is what I understand:
year 1 8500*1.07= 9095
year 2 (8500 + 9095)*1.07

I understand to contimue doing this until I reach 15 years. I do not understand why 8500 is added each time. Please explain the solution to the problem. why isn't it 8500*1.07 = 9095
9095*1.07 =9731.65 and so on?

 

[jonah]

I believe the answer is $228548.46

Not even close.

 

[Denis]

Jean will receive $8,500 per year for the next 15 years from her trust.
......................................
I do not understand why 8500 is added each time.

What's your problem? Seems evident: it is SPECIFIED in your problem.