## You Have Decided To Endow Your Favorite University

Personal Finance Problem

Creating a retirement fund To supplement your planned retirement in exactly 42 years, you estimate that you need to accumulate \$220,000 by the end of 42 years from today. You plan to make equal, annual, end-of-year deposits into an account paying 8% annual interest.

a. How large must the annual deposits be to create the \$220,000 fund by the end of 42 years?

b. If you can afford to deposit only \$600 per year into the account, how much will you have accumulated by the end of the forty-second year?

### Personal Finance Problem

Accumulating a growing future sum A retirement home at Deer Trail Estates now costs \$185,000. Inflation is expected to cause this price to increase at 6 % per year over the 20 years before C. L. Donovan retires. How large an equal, annual, end-of-year deposit must be made each year into an account paying an annual interest rate of 10% for Donovan to have the cash needed to purchase a home at retirement?

### Personal Finance Problem

Deposits to create a perpetuity You have decided to endow your favorite university with a scholarship. It is expected to cost \$6,000 per year to attend the university into perpetuity. You expect to give the university the endowment in 10 years and will accumulate it by making equal annual (end-of-year) deposits into an account. The rate of interest is expected to be 10% for all future time periods.

a. How large must the endowment be?

b. How much must you deposit at the end of each of the next 10 years to accumulate the required amount?

### Personal Finance Problem

Inflation, time value, and annual deposits While vacationing in Florida, John Kelley saw the vacation home of his dreams. It was listed with a sale price of \$200,000. The only catch is that John is 40 years old and plans to continue working until he is 65. Still, he believes that prices generally increase at the overall rate of inflation. John believes that he can earn 9% annually after taxes on his investments. He is willing to invest a fixed amount at the end of each of the next 25 years to fund the cash purchase of such a house (one that can be purchased today for \$200,000) when he retires.

a. Inflation is expected to average 5% per year for the next 25 years. What will John's dream house cost when he retires?

b. How much must John invest at the end of each of the next 25 years to have the cash purchase price of the house when he retires?

c. If John invests at the beginning instead of at the end of each of the next 25 years, how much must he invest each year?

jjjyj¡JJ Loan payment Determine the equal, annual, end-of-year payment required each year over the life of the loans shown in the following table to repay them fully during the stated term of the loan.

Was this article helpful?

0 0

## Your Retirement Planning Guide

Don't Blame Us If You End Up Enjoying Your Retired Life Like None Of Your Other Retired Friends. Already Freaked-Out About Your Retirement? Not Having Any Idea As To How You Should Be Planning For It? Started To Doubt If Your Later Years Would Really Be As Golden As They Promised? Fret Not Right Guidance Is Just Around The Corner.

Get My Free Ebook

### Responses

• MAIK FREI
How much each year is needed to fund an perpetuity?
8 years ago
• ren decker
How large must the annual deposits be to create the 220,000 fund by the end of 42 years?
8 years ago
• jacob
How large must the annual deposits be to create the \$220,000 fund by the endof 42 years?
8 years ago
• birikti biniam
How much must deposit each year to accumulate to the required amount?
7 years ago