Investment and College Education
1. Assume the total cost of a college education will be #280,000 when your child enters college in 18 years. You presently have s$45,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education
R= (($280,000/$45,000)^(1/18)) -1
R=.10689
R=10.69%
2. You’re trying to save to buy a new $150,000 Ferrari. You have $35,000 today that can be invested at your bank. The bank pays 3.2% annual interest on its account. How long will it be before you have enough to buy the car?
T= (In ($150,000/$35,000)/ ((In (1+.032)) = 46.20years
3. Suppose you are still committed to owing a $150,000 Ferrari. If you believe your mutual fund can achieve 10.25% annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?
PV=FV(1+r)^-t
PV=$150,000(1+.1025)^-10
PV=$56,533.42
He should invest $56,533.42 today
4. You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn 10.01% rate of return and make no additional contributions. What will your account be worth when you retire in 45years?
FV=PV(1+.101)^45
FV=$5,000(1+.101)^45
FV=$379,663.947
If he invests $5,000 now, when he retires in 45years his money will be $379,663.947.
B.45years – 10 years will be 35years
FV=$5,000(1+.101)^35
FV=$145,052.8173
If he waits for another 10years before investing, his investment will be worth $145,053.82.
Yes it suggests an investment strategy. It shows that if he invests today his investment will yield more interest due to the compounding power or time involved. The longer you invest your money the more money you will get from your investment.
R= (($280,000/$45,000)^(1/18)) -1
R=.10689
R=10.69%
2. You’re trying to save to buy a new $150,000 Ferrari. You have $35,000 today that can be invested at your bank. The bank pays 3.2% annual interest on its account. How long will it be before you have enough to buy the car?
T= (In ($150,000/$35,000)/ ((In (1+.032)) = 46.20years
3. Suppose you are still committed to owing a $150,000 Ferrari. If you believe your mutual fund can achieve 10.25% annual rate of return, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?
PV=FV(1+r)^-t
PV=$150,000(1+.1025)^-10
PV=$56,533.42
He should invest $56,533.42 today
4. You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn 10.01% rate of return and make no additional contributions. What will your account be worth when you retire in 45years?
FV=PV(1+.101)^45
FV=$5,000(1+.101)^45
FV=$379,663.947
If he invests $5,000 now, when he retires in 45years his money will be $379,663.947.
B.45years – 10 years will be 35years
FV=$5,000(1+.101)^35
FV=$145,052.8173
If he waits for another 10years before investing, his investment will be worth $145,053.82.
Yes it suggests an investment strategy. It shows that if he invests today his investment will yield more interest due to the compounding power or time involved. The longer you invest your money the more money you will get from your investment.