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Homework answers / question archive / 1) You plan to retire when you have $1,000,000 in savings
1) You plan to retire when you have $1,000,000 in savings. You can make a deposit of $350 per quarter into a retirement saving account that pays 12 percent annual interest rate compounded quarterly. How many years will you have to wait to retire?
2) You invest $10,000 into a savings account that pays an annual interest rate of 11.25%, compounded monthly. How much would you have in your account after 15 years?
3) You purchased a rare baseball card for $10,000 as an investment. Five years later you accidentally spilled coffee on it while working on your finance exam and were forced to sell it for $6,000. What rate of return did you earn?
1) We can calculate the number of payments period by using the following formula in excel:-
=nper(rate,pmt,pv,-fv)
Here,
Nper = Number of payments period (Quarterly)
Rate = 12%/4 = 3% (quarterly)
Pmt = $350
PV = $0
FV = $1,000,000
Substituting the values in formula:
= nper(3%,350,0,-1000000)
= 150.97 periods
Number of years = Nper / 4
= 150.97 / 4
= 37.74 years
2) We can calculate the future value by using the following formula in excel:-
=fv(rate,nper,pmt,-pv)
Here,
FV = Future value
Rate = 11.25%/12 = 0.9375% (monthly)
Nper = 15*12 = 180 periods (monthly)
Pmt = $0
PV = $10,000
Substituting the values in formula:
= fv(0.9375%,180,0,-10000)
= 53,636.19
3) We can calculate the rate of return by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = Rate of return
Nper = 5 periods
Pmt = $0
PV = $10,000
FV = $6,000
Substituting the values in formula:
= rate(5,0,-10000,6000)
= -9.71%
