Question 1 After graduation, you plan to work for Donald’s Fashion Co. for 7 years and then...

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Finance

Question 1
After graduation, you plan to work for Donald’s Fashion Co.for 7 years and then start your own business. You expect to saveand deposit $ 10,000 a year for the first 3 years (t = 1 through t= 3) and $14,000 annually for the next 4 years (t = 4 through t =7). The first deposit will be made a year from today. In addition,your grandfather just gave you a $40,000 graduation gift which youwill deposit immediately (t = 0). If the account earns 8%compounded annually, how much will you have when you start yourbusiness 7 years from now?
Question 2
Your sister turned 20 today, and she is planning to save$5,000 per year for retirement, with the first deposit to be madeone year from today. She will invest in a mutual fund that'sexpected to provide a return of 7% per year. She plans to retire 40years from today, when she turns 60, and she expects to live for 25years after retirement, to age 85. Under these assumptions, howmuch can she spend each year after she retires, if she can earn 9 %per year after retirement. Her first withdrawal will be made at theendof her first retirement year.
Question 3
After working for a long time (20 years) with your company,you have decided to accept the company’s termination offer of$24,000 per year for 25 years or accept a lump sum of $374,928 oneyear from today.
1. If you can earn 7% per year on other investments, will youaccept this lump sum or take the annuity payments? Show thecalculations used to accept or reject any one of the twooptions.
1. What interest rate the company is offering you in theannuity? Will your decision change?

Question 4 -
4. (a) If you want to be a millionaire in 15 years from nowand you can only save $12,000 every which you deposit at the end ofevery year for 15 years in a mutual fund, what interest rate mustyou earn to become a millionaire in 15 years? (answer to theclosest interest rate)
(b) If you want to be a millionaire in 20 years from now andyou can earn 8% interest per year in a mutual fund, how much moneymust you deposit per year to be a millionaire in 20 years?

Answer & Explanation Solved by verified expert

4.3 Ratings (933 Votes)

1 Value of first deposit of 40000 after 7 year4000010876855297Similarly the value of all money after 7 year is17580545Calculation given See Answer

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Question 1After graduation, you plan to work for Donald’s Fashion Co.for 7 years and then start your own business. You expect to saveand deposit $ 10,000 a year for the first 3 years (t = 1 through t= 3) and $14,000 annually for the next 4 years (t = 4 through t =7). The first deposit will be made a year from today. In addition,your grandfather just gave you a $40,000 graduation gift which youwill deposit immediately (t = 0). If the account earns 8%compounded annually, how much will you have when you start yourbusiness 7 years from now?Question 2Your sister turned 20 today, and she is planning to save$5,000 per year for retirement, with the first deposit to be madeone year from today. She will invest in a mutual fund that'sexpected to provide a return of 7% per year. She plans to retire 40years from today, when she turns 60, and she expects to live for 25years after retirement, to age 85. Under these assumptions, howmuch can she spend each year after she retires, if she can earn 9 %per year after retirement. Her first withdrawal will be made at theendof her first retirement year.Question 3After working for a long time (20 years) with your company,you have decided to accept the company’s termination offer of$24,000 per year for 25 years or accept a lump sum of $374,928 oneyear from today.1. If you can earn 7% per year on other investments, will youaccept this lump sum or take the annuity payments? Show thecalculations used to accept or reject any one of the twooptions.1. What interest rate the company is offering you in theannuity? Will your decision change? Question 4 -4. (a) If you want to be a millionaire in 15 years from nowand you can only save $12,000 every which you deposit at the end ofevery year for 15 years in a mutual fund, what interest rate mustyou earn to become a millionaire in 15 years? (answer to theclosest interest rate)(b) If you want to be a millionaire in 20 years from now andyou can earn 8% interest per year in a mutual fund, how much moneymust you deposit per year to be a millionaire in 20 years?