Quiz 2 - Time Value of Money
$635,824 IRA value
Barry Cuda currently has $15,000 in his Roth IRA which has been earning 6%. Barry is planning on depositing $5500 annually for the next 40 years into this IRA. Assuming Barry's IRA continues earning 6% annually, what will Barry's IRA be worth at the end of 30 years? $635,824 IRA value
$1,322,630 IRA value
Barry Cuda currently has $15,000 in his Roth IRA which has been earning 7%. Barry is planning on depositing $5500 annually for the next 40 years into this IRA. Assuming Barry's IRA continues earning 7% annually, what will Barry's IRA be worth at the end of 40 years? 15,000(D-1 7%, 40yrs = 14.974) = 224,610 + 5,500(D-2 7%,40yrs=199.64) = 1,098,020 $1,322,630 IRA value
$22,488
Barry Cuda has estimated that he will live for 25 years after he retires at age 67. He would like to be able to withdraw $90,000 annually from his retirement account for those 25 years assuming his account during retirement earns 6% annual interest. If Barry has 20 years until he retires, how much will he need to save annually at 9% to reach his goal? 90,000(D-4 6%, 25 yrs = 12.783) = $1,150,470/(D-2 9%, 20 yrs = 51.160) = $22,488
$11,197
Barry Cuda has estimated that he will live for 30 years after he retires at age 63. He would like to be able to withdraw $80,000 annually from his retirement account for those 30 years assuming his account during retirement earns 6% annual interest. If Barry has 25 years until he retires, how much will he need to save annually at 10% to reach his goal? 80,000(D-4 6%, 30 yrs = 13.765) = $1,101,200/(D-2 10%, 25 yrs = 98.347) = $11,197 $14,086 $13,237 $12,655 $11,197
$4704 principal reduction
Bob Katz is purchasing a new Honda Pilot for $35,000. He is financing $30,000 with a six-year, 4% loan with annual payments. Construct an amortization schedule, in the 2nd year row, corresponding to his second annual payment, what is the dollar amount of the principal reduction? Year Loan Balance Payment Interest Principal 0 30,000 --- --- --- 1 25,477 5723 1200 4523 2 5723 1019 4704 prin reduction
$5018 principal reduction
Bob Katz is purchasing a new Honda Pilot for $35,000. He is financing $32,000 with a six year, 4% loan with annual payments. Construct an amortization schedule, in the 2nd year row, corresponding to his second annual payment, what is the dollar amount of the principal reduction? Year Loan Balance Payment Interest Principal 0 30,000 --- --- --- 1 25,477 5723 1200 4523 2 5723 1019 4704 prin reduction (5018 prin reduction) $5018 $4825 $4704 $4523
$2449 save annually
Bob Katz would like to save $250,000 over the next 25 years. If Bob knows today that he will be given $100,000 in 15 years as part of an inheritance, how much would Bob need to save annually over the next 25 years assuming he earns 4% interest? $2449 save annually
$2020 save annually
Bob Katz would like to save $275,000 over the next 20 years. If Bob knows today that he will be given $150,000 in 15 years as part of an inheritance, how much would Bob need to save annually over the next 20 years assuming he earns 6% interest? 150,000(D-1 6%, 5yrs = 1.338) = $200,700 value at end of year 20 275,000 - 200, 700 = $74,300 still needed / (D-2 6%,20yrs = 36.786) = $2020 save annually $2020 save annually $1985 save annually $1824 save annually $1483 save annually
$27,358 save annually
Ella Funt would like to set up her retirement account that will begin in 25 years. To play it safe, she wants to assume that she will live forever and she will withdraw $100,000 annually. Assuming her account will earn 8% interest during the next 25years and 5% interest afterwards forever, how much will Ella need to save annually over the next 25 years to fund her retirement account? 100,000/.05 = 2,000,000 needed for retirement 2,000,000/(D-2 8%, 25 yrs = 73.106) = $27,358 save annually $16,212 save annually $22,798 save annually $27,358 save annually $30,454 save annually
$17,384 save annually
Ella Funt would like to set up her retirement account that will begin in 35 years. To play it safe, she wants to assume that she will live forever and she will withdraw $150,000 annually. Assuming her account will earn 9% interest during the next 35 years and 4% interest afterwards forever, how much will Ella need to save annually over the next 35 years to fund her retirement account? (End of video problem) 150,000/.04 = $3,750,000/(D-2 9% 35 yrs = 215.71) = $17,384 save annually