1. Sarah Wiggum would like to make a single investment and have $1.6 million at the time of her retirement in 35 years. She has found a retirement fund that will earn 3% annually. How much will Sarah have to invest today? If she earned an annual return of 20%, how soon could she then retire?
2. After placing $13,000 in a savings account paying annual compound interest of 3%, Leona will accumulate what amount if she leaves the money in the bank for 4 years?
3. Alex Karez has taken out a loan of $180,000 with an annual rate of 10% compounded monthly to pay off hospital bills from his wife’s illness. If the most Alex can afford to pay is $3,500 a month, how long will it take to pay off the loan? How long will it take to pay off the loan if he can pay $4,000 each month? Use five decimal places for the monthly percentage rate in your calculations. If Alex can pay $3,500 a month, how many years will it take to pay off the loan?
4. What is the present value of a $650 perpetuity discounted back to the present at 10%? What is the present value of the perpetuity?
5. John Jetison believes he would need $500,000 to retire today and keep his same lifestyle. If Jetison estimates he will retire in 20 years, how much should he put away each month to have the equivalent of $500,000 in 20 years if the interest he can earn is 5%? If the interest rate changes to 3%, what will Jetison need to save each month? Picture cash flows on a timeline and present it when providing your answer. Think about your own retirement; what would the timeline look like? In what ways could you better prepare for retirement?