Time Value of Money-An Application
Please answer the following questions. SHOW ALL WORK AND EXPLAIN EACH STEP CAREFULLY.
Problem 1. You would like to take a cruise in six years. The cruise currently costs $4,250. You expect the price to increase by 4% annually. You can earn 5% on your savings. How much do you need to save at the end of each month so you will be able to afford your cruise in six years?
Problem 2. You invest $250 in your savings account at the end of each year and earn an average of 6% per year in interest. How much will you have in your savings account at the end of forty years?
Problem 3. You want to have $40,000 to buy a new boat in six years. How much do you have to save at the end of each year to reach this goal if you earn 5% a year on your savings?