1. Future Value Annuity. You want to deposit $1,000 each year for your kid’s or niece’s education. If you place it in a savings account that pays 5% per year, what amount will be in the account in 20 years?
2. Present Value. You would like to give your niece/nephew a gift of $10,000 on her/his 18th birthday. You can earn 7% annual interest on a certificate of deposit. How much must you deposit now to achieve your goal?
3. Future Value of Annuity. Twins Jessica and Joshua, both 25, graduated from college and began working in the family business. The first year, Jessica began putting $2,000 per year in an individual retirement account and contributed to it for a total of 10 years. After 10 years, she made no further contributions until she retired at age of 65. Joshua did not start making contributions to his individual retirement account until he was 35, but he continued making contributions of $2,000 each year until he retired at age 65. Assuming that both Jessica and Joshua receive 10% interest per year, how much will Jessica have at retirement? How much did she contribute in total? How much will Joshua have at retirement? How much did he contribute in total?
4. Estimating the Annuity Amount. Amy and Vince want to save $7,000 so that they can take a trip to Europe in four years. How much must they save each year to have the money they need if they can get 8% per year, compounded yearly, on their savings?
5. Future Value of Annuity. Stacey would like to have $1 million available to her at retirement. Her investments have an average annual return of 11%. If she makes contributions of $300 per month, will she reach her goal when she retires in 30 years? How much she should contribute per year to have the $1 million she desires? Tip: convert the monthly amount to annual equivalent amount.