1) Sam’s parents just retired and have $450,000 in a retirement account. They can earn 4% in this account. If they want to withdraw equal amounts of money every year for the next 30 years (starting at the end of this year), how much can take out every year so that 30 years from now, they have no money remaining in their account?
$15,000
$32,975
$26,024
$41,564
2) Cindy just had a baby and wants to start saving for the baby’s college education. Her goal is to save a constant amount every year for 17 years (starting at the end of this current year), so that she will be able to withdraw $25,000 a year, for 4 years, starting at the end of year 18. How much will she need to save per year for the first 17 years in order to achieve her goal? Assume she can earn an annual interest rate of 5%.
$3,431
$5,556
$5,882
$2,487
3) For savers who want to maximize their account balances, what is more valuable: $1000 today OR $1000 tomorrow?
$1000 today
$1000 tomorrow
They are the same
4) Which of the following 2 options would you prefer?
Assume i=10%
$2,000 per year for the next 40 years (payments would start at the end of this year)
$20,000 today