Definitions
What is the term for the following definition?
A series of equal payments made at regular intervals.
Annuity
Question: "I want to save $100 a month for 10 years. What will my final balance be?" You would use this 1-step formula.
Future Value of an Annuity formula
Question: Find the future value of $100 deposited every month for 5 years at 6% compounded monthly.
$6,977.00
How much must you invest today to be able to withdraw $1,000 at the end of each year for 3 years? Your account pays 5% interest annually.
$2,723.25
The parents of a newborn child want to save $100,000 for college in 18 years. How much must they deposit at the end of each year into an account that pays 7% compounded annually?
$2941.26
What is the term for the following definition?
The type of annuity where payments are made at the end of each period.
Ordinary annuity
Question: "I need $50,000 in 5 years. What monthly payment do I need to make?" You would use this 1-step formula.
Sinking Fund Payment formula
Question: Find the future value of $500 deposited every six months for 30 years at 7% compounded semi-annually.
$98,258.44
What must you invest today to receive an $18,000 annuity at the end of each 6-month period for 5 years? The account pays a 10% annual rate compounded semiannually.
$138,991.23
You want to save $25,000 for a new car in 5 years. How much must you save at the end of each semi-annual period (every six months) in an account that pays 6% compounded semi-annually?
$2180.76
What is the term for the following definition?
A savings plan designed to meet a specific future goal by making regular payments.
Sinking fund
Question: "I am retiring today. How much do I need to have saved to withdraw $2,000 a month for 20 years?" You would use this 1-step formula.
Present Value of an Annuity formula
Question: Find the future value of $100 deposited every month for 20 years at 6% compounded monthly.
$46,204.09
You just won a lottery! You will receive $25,000 at the end of every quarter for the next 10 years. How much must the lottery commission invest today in an account paying 4% compounded quarterly to fund your winnings?
$820,867.15
A small business needs to buy a new server that will cost $8,000 in 3 years. How much must the company deposit at the end of each quarter into an account that pays 4% compounded quarterly?
$630.79
What is another way to describe what the variable P respesents in the formula A = P(1+i)^N other than "the principal"?
A single lump sum
Question: "In 10 years, I want to retire and withdraw $4,000 a month for 25 years. How much do I need to deposit today?" You would use these two formulas.
Present Value of an Annuity formula (for the withdrawals at the start of retirement) and Present Value formula (to find the value today)
Question: For 10 years, you deposit $200/month (6% monthly). You then stop and wait 5 more years before you withdraw your money. What is the final balance that you can withdraw?
$44,209.74
Sarah Lynn plans to retire in 10 years. She wants to be able to withdraw $50,000 at the end of each year for 20 years after she retires. How much must Sarah invest today as a single lump sum to fund her retirement, assuming her account pays 7% interest compounded annually?
269,272.98
You are saving for a wedding that you plan to have in 2 years. You estimate it will cost $15,000. How much must you save at the end of each month in an account that pays 3% compounded monthly?
$607.22
How are the variables P (from the Compound Interest formula) and Pmt (from the Future Value of an Ordinary Annuity formula) different?
P is a single lump sum, whereas Pmt is a series of regular payments.
Question: "I want to save $100 a month for 10 years, then stop and let the money grow for 5 more years. What is my final balance?" You would use these two formulas.
Future Value of an Annuity formula (for the savings part) and Compound Interest formula (for the waiting part)
Question: John Sands made deposits of $200 semiannually to a bank that pays 8% interest compounded semiannually. After 5 years, John makes no more deposits. What will be the balance in the account 6 years after the last deposit?
$3,844.43
Al Vincent has decided to retire in 10 years. What amount should Al invest today so that he will be able to withdraw $28,000 at the end of each year for 15 years after he retires? Assume he can invest the money at 8% interest compounded annually.
111,011.45
A 25-year-old wants to have $1,000,000 in their retirement account at age 65 (a 40-year term). How much would they have to deposit at the end of each month in an account that pays 8% compounded monthly?
$286.45