Problem
One of Owens Financial Planning Extremists' customers is the Northup family. The Northup family is planning to take a luxurious round-the-world cruise in 5 years and wants to consider different alternatives for saving the $250,000 necessary for this vacation.
I. What annuity payment at the end of years 1 through 5 would be needed at a 3% annual rate, compounded annually?
II. What annuity payment at the beginning of years 1 through 5 would be needed at a 3% the annual rate, compounded annually?
III. What annuity payment at the end of years 1 through 5 would be needed at a 3% annual rate, compounded monthly?
IV. What annuity payment at the beginning of years 1 through 5 would be needed at a 3% the annual rate, compounded monthly?
V. Suppose we found an investment that promises to return 3% annually, compounded continuously.
i. What single amount would need to be invested today?
ii. What annuity payment at the end of years 1 through 5 would be needed?
iii. What annuity payment at the beginning of years 1 through 5 would be needed?
VI. Suppose the Northup decide to invest the following amounts in order to save up the $250,000 they plan to spend for a vacation in 5 years.
YEAR CASH INVESTED
0 $20,000
1 $25,000
2 $30,000
3 $35,000
4 $40,000
5 $50,000
VII. If all the above-invested cash earns 4% annually, what is the future value at the end of 5 years? (Answer with Excel)
VIII. If all the above cash flows in years 1 through 5 remain the same as above, how much would the cash investment have to be at time 0 for the future value to be $250,000? Assume all cash flows earn 4% annually.