1) You have a child that is 8 years old, and would like to start saving up for their college education. You would like be able to pay $45,000 each year for four years of college starting 10 years from now (in years 10-13). How much do you need to save annually in years 1-9 to meet your goal, if you can earn a real annual return of 8% on your college savings account?
2) An investment costs $1500 up front, but won’t start paying off until three years from now, at which time it will return $200 per year for a period of ten years. If your hurdle rate is 3%, does this investment make sense?
3) After graduating from UT, you are hired by a company that offers a 401(k) retirement plan. You would like to save enough in this plan so that when you retire in 35 years you have an account balance of $1 million. You plan to make monthly contributions, and expect an annual return of 4%, compounded monthly. How much should you contribute each month to reach your goal?