Continuation : Chapter 3
1. C
2. 80,000 for house that requires downpayment of 100,000 in 5 years.
Inflation is a problem
Answer: B
3. Answer:
4. A
5. Constant growth annuity : none of the above
Detailed problems:
1. Assume PV 1500,000 , N = 30, I = 3%, then PMT 76528
What he gets is FV = 1500,000, PMT =- 5000, I = 10% , compute PV = 822, 470
What can he do to fix this:
- Change goal : he can change his amount say instead of 76000 a year, change to about 36000-
40000. ( eat less later)
Or he can change his time of retirement : FV 1500,000 , I = 10%, PMT -5000, you get 36.1
years. Note : that you’d have to work a few more years( 6.1 years plus) and so, you’d lower
your expenses post retirement .
- Money down now: FV 1500,000 PMT- 5000, I = 10, n = 30 , you get PV = 38828
- Larger payments : save more now ( eat less now ). / work harder ( work overtime) FV
1500,000, I = 10, n=30, your payment would be -9118 per year
- Riskier investments : FV 1500,000 PMT -5000, I= 10%, n = 30 , youre interest would be
13.12%.
Note: there is a problem: what to invest in to get that return
2. Answers:
a. $1989
b. $18122
c. 0-------------------------------------5-------------------------------------------------------------------15
0 10,000

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