Author Question: Bill starts a retirement fund at age 21 and plans on depositing equal annual amounts on each ... (Read 193 times)

penza

  • Hero Member
  • *****
  • Posts: 1,022
Bill starts a retirement fund at age 21 and plans on depositing equal annual amounts on each birthday, starting
  at age 21, and ending at age 60. He wants to have 2 million at age 60. John starts his fund on his 30th birthday.
 
  He wants to deposit equal annual amounts on each birthday starting on his 30th birthday and ending on his
  60th birthday. John wants to have 2 million at age 60. If the investment funds earn 10 per year, calculate the
  amounts the Bill and John respectively will have to save each year (rounded to the nearest dollar) to meet their
  goals. Comment on the difference.

Question 2

Which of the following is NOT a valid theory that attempts to explain the shape of the term
  structure of interest rates?
 
  A) the Fisher Effect theory B) the unbiased expectations theory
  C) the liquidity preference theory D) the market segmentation theory


GCabra

  • Sr. Member
  • ****
  • Posts: 331
Answer to Question 1

Bill will need to make deposits of 4,519 per year, while John will need to make deposits of 10,992 per year. These
amounts are based on the future value of the annuity in each case of 2,000,000, N = 40 for Bill and N = 31 for John,
with I = 10. The difference illustrates the importance of compounding and the need to begin saving early. John's
annual deposits are more than twice Bill's deposits, even though the number of years is only 9 fewer, or less than 25
less.

Answer to Question 2

A



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

There are actually 60 minerals, 16 vitamins, 12 essential amino acids, and three essential fatty acids that your body needs every day.

Did you know?

Vaccines cause herd immunity. If the majority of people in a community have been vaccinated against a disease, an unvaccinated person is less likely to get the disease since others are less likely to become sick from it and spread the disease.

Did you know?

It is believed that humans initially contracted crabs from gorillas about 3 million years ago from either sleeping in gorilla nests or eating the apes.

Did you know?

Long-term mental and physical effects from substance abuse include: paranoia, psychosis, immune deficiencies, and organ damage.

Did you know?

Ether was used widely for surgeries but became less popular because of its flammability and its tendency to cause vomiting. In England, it was quickly replaced by chloroform, but this agent caused many deaths and lost popularity.

For a complete list of videos, visit our video library