Questions -
Q1) If Jim deposits $2000 in a money market account and it earns 3% (compounded annually) per year,
1. How much will he have in 8 years?
2. How much will he have if he earns 4% for 8 years?
3. How long will it take his money to double if he earns 4%? 6%?
4. How long would he have to leave it in the account (at 3%) in order to accumulate $10,000?
Q2) Vanessa wants to accumulate $18000 in her savings to return to graduate school in 6 years. Assuming she can earn 4.5% interest (compounded annually),
1. How much would she need to deposit today to reach her goal (one-time deposit)?
2. How much would she need to deposit each year (at the beginning of the year, aka "ordinary annuity") to reach her goal?
3. If she found a way to earn 6%, how much would her annual deposit need to be?
Q3) Harold begins a savings program immediately after college, depositing $200/month in an account earning interest (compounded annually) at 7%. He does this for 30 years. His buddy, Wayne, doesn't begin such a savings program until he has been working for 10 years, and so saves $200/month for twenty years, earning the same interest. How much does each fellow have at the end of the 30 years?
Q4) Evan is examining two different investment alternatives: option A would require an annual deposit of $2000 and would earn interest (compounded annually) at 9%. Option B would require an annual deposit of $1500 but would earn interest (compounded annually) at 12% (it's more risky). Which option would you advise him to take? Show your calculations and defend your answer. (Hint: this is really a discussion question!)