242 Chapter 2 Evaluating Projected Cash FlowsEXERCISES 5.4
A. Finding Time with Future Values- Thierry has $43,925 in his retirement account right now. He deposits $3,000 each year, and intends to continue to do
so. If his account earns 8.55%, how long will it be before his account value reaches $1,000,000? - Jess plans to open an investment account at the end of this year with a $2,500 deposit. She plans to increase her
deposits by 4% each year, and thinks that her account can earn 10%. How long will it take for her account value to
reach $750,000?
B. Solving for Interest Rates- At a presentation for her company’s 401(k) plan, Sahlia was told that, if she deposits $2,400 per year into the plan, she
will have $1,000,000 in 30 years. What growth rate was the presenter assuming in making this claim? - If you invest $250 per month, what rate would your account have to earn to reach $1,000,000 in 20 years? How about
in 40 years? - Mike and Nancy are in the market for a new house. They expect to have to borrow $200,000, and they hope to keep
their monthly payment at (or below!) $1,650 a month. What interest rate would they have to get for a 30-year loan in
order to be able to do this?
C. Changing Interest Rates- Anna plans to invest $200 each month in a retirement account. She already has $24,043.25 in her account. If her
account earns 9% for the fi rst 10 years, and then 8% for the next 10 years, how much will she have at the end of the
20 years? - ParmOgden Cheese Company borrowed $2,500,000 with a variable interest rate loan. According to the loan’s terms,
the interest rate will be 4.99% for the fi rst year, and the rate may increase by 1.50% each year (6.49% maximum in year
2, and so on), up to a maximum of 8.99%. All rates are compounded quarterly.
The company will make quarterly payments of $75,000. Assuming that the maximum interest rates are charged on this
loan, how long will it take to pay off this debt?
D. More Complicated Situations- Magda has $935,277 in her 401(k) account and plans to retire in 5 years. She is depositing $3,577.09 each year into
the account and plans to increase this amount by 4% each year until she retires. She believes her account will earn
7¼% until she retires.
In retirement, she expects her account to earn 5¾%, and plans take $72,500 in the fi rst year, increasing this amount by
3% per year. If she does this, how long will her money last?
242 Chapter 5 Spreadsheets