Solutions To Assignment TVM Practice Q 
1. James plans to fund his individual retirement account, beginning today, with 20 annual deposits of $2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits, the amount in the account upon retirement will be 98845.84(since it is a retirement plan so, assumed to be annuity due) correct 91,523.93 – ordinary annuity in this accumulation phase.
2. $100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is __727.37____.
3. Marla borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end‑of‑year payment is 1481.55
4. A beach house in southern California now costs $350,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 20 years before Louis and Kate retire from successful careers in commercial art. How large an equal annual end‑of‑year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the beach house upon retirement? value of house on ret. 9,28,654.20; A=11,472.40
.
5. Chris is planning for her son 's college education to begin five years from today. She estimates the yearly tuition, books, and living expenses to be $5,000 per year for a four‑year degree. How much must Chris deposit today, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college?
First we need to calculate the PV of a 4 years annuity with an annual payment of $5,000 at 8%
=
= $16,560.60
This is the value that should be in Thelma’s account 5 years from now, now we need to calculate the PV of this amount which would equal the amount Thelma must deposit today:
=
= $11,270.90
12,172.91
6. Entertainer 's Aid plans five
2. $100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is __727.37____.
3. Marla borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end‑of‑year payment is 1481.55
4. A beach house in southern California now costs $350,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 20 years before Louis and Kate retire from successful careers in commercial art. How large an equal annual end‑of‑year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the beach house upon retirement? value of house on ret. 9,28,654.20; A=11,472.40
.
5. Chris is planning for her son 's college education to begin five years from today. She estimates the yearly tuition, books, and living expenses to be $5,000 per year for a four‑year degree. How much must Chris deposit today, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college?
First we need to calculate the PV of a 4 years annuity with an annual payment of $5,000 at 8%
=
= $16,560.60
This is the value that should be in Thelma’s account 5 years from now, now we need to calculate the PV of this amount which would equal the amount Thelma must deposit today:
=
= $11,270.90
12,172.91
6. Entertainer 's Aid plans five