8. Suppose that you are now 30 and that you would like $2million at age 65 to fund your retirement. You would like to saveeach year an amount that grows by 5% each year (that is, if yousave $1 this year, you will save $1.05 next year). Assume that thediscount rate is 8%. How much should you start saving at the end ofthis year? (Hint: first calculate the present value of the $2million, then use the growing annuity formula to calculate theamount you must save at the end of this year).
| | $8,920 |
| | $6,473 |
| | $15,200 |
| | $57,142 |
9. You’ve decided to buy a new computer that costs $1,500. ButBest Buy will let you take the computer home without making payingthe full price immediately. Rather, Best Buy will let you pay $500now, and $500 at the end of each of the next two years.
Your bank offers you a savings account that earns 2% annually,and a two-year certificate of deposit (CD) that earns 5% annually.Note that to earn the 5% on the CD, you have to leave your moneythere for the full two years.
How much money do you need today to make sure you can make allthe payments to Best Buy?
| | 1500 |
| | 1470.78 |
| | 1443.71 |
| | 1429.71 |
