Question

Time Value of Money
Assume that 4 years from now you will need $1,000. Your bank compounds interest at an
8% annual rate.
a. How much must you deposit 1 year from now to have a balance of $1,000 at Year 4?
b. If you want to make equal payments at the end of Years 1 through 4 to accumulate
the $1,000, how large must each of the 4 payments be?
c. If your father were to offer either to make the payments calculated in part b ($221.92)
or to give you a lump sum of $750 one year from now, which would you choose?
d. If you will have only $750 at the end of Year 1, what interest rate, compounded
annually, would you have to earn to have the necessary $1,000 at Year 4?
e. Suppose you can deposit only $186.29 each at the end of Years 1 through 4, but you
still need $1,000 at the end of Year 4. What interest rate, with annual compounding,
is required to achieve your goal?

Answer 1

Answer:

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