a. You wish to have $1,500,000 by the age of 60 (30 years from now). If you can earn 8% interest on your investments, how much do you need to save per month, in order to achieve your goal? b. You decide you can afford house payments (principle and interest) of $900 per month. Given an annual rate of 5.5% for a 30 year loan, how much will you be able to borrow? c. You have $100,000 invested today. If you add $300 per month to your investments, after 35 years, assuming 8% annual interest, how much do you have total? d. You believe you could live on $6,000 per month today. What is the equivalent amount of money to the $6,000 (in terms of cost of living), 30 years from today, if it is adjusted for 2.5% annual inflation?

A) We need to save $1,005 per month in order to have 1,500,000 in 30 years.

B) We will be able to borrow 158,579

C) We will have 2,259,361 in 35 years

D) The equivalent amount of money is 12,585

Explanation:

A) We are given a future value that we need to have in 30 years. So our future value is 1,500,000. Our present value is 0, our interest rate is 8/12=0.667. We divide 8 by 12 because we need to save money per month. The number of compounding periods are (30*12) = 360. We multiply by 12 because monthly payments. Now we will enter this information in a financial calculator to find future value.

Pv = 0

FV = 1,500,000

I=0.66

N=360

Compute PMT = 1,005

B) PMT = 900

I=5.5/12=0.458

N = 30*12=360

FV=0

Compute PV

PV=158,579

C) PV = 100,000

PMT = 300

N = 35*12 = 420

I=8/12=0.66

Compute FV=2,259,361

D) We need to know how much money will we need 30 years from now if we want to buy goods and services which are worth 6,000 today considering an inflation rate of 2.5%

We will multiply 6000 by (1+Inflation) ^number of years

6000 * (1.025) ^30

=12,585