1. (Mt) – How to under stand Financial Management
Unformatted Preview Dicussion John Jetison believes he would need $500,000 to retire
today and keep his same lifestyle. If Jetison estimates he will retire in 20 years, how much
should he put away each month to have the equivalent of $500,000 in 20 years if the
interest he can earn is 5%? If the interest rate changes to 3%, what will Jetison need to save
each month? Picture cash flows on a time line and present it when providing your answer.
Think about your own retirement; what would the time line look like? In what ways could
you better prepare for retirement? Test -How many years will it take for $500 to grow to
$1,051.82 at 9% interest compounded annually? -If you deposit $17,000 today in an account
earning an annual rate of return of 10%, how much interest would be earned in the third
year? How much would this amount differ from simple interest? -What is the present value
of a $650 perpetuity discounted back to the present at 10%? What is the present value of
the perpetuity? -To pay for your education, you have taken out $28,000 in student loans. If
you make monthly payments over 13 years at 5% compounded monthly, how much are
your monthly student loan payments? -How much do you have to deposit today so that,
beginning 11 years from now, you can withdraw $9,000 a year for the next 8 years (periods
11 through 18) plus an additional amount of $18,000 in the last year (period 18)? Assume
an interest rate of 6%.
