Purchase Solution

Funding Budget Short

Not what you're looking for?

Ask Custom Question

P4-32

As part of your personal budgeting process, you have determined that in each of the next five years you will have budget shortfalls. In other words, you will need the amounts shown in the following table at the end of the given year to balance your budget-that is, inflows equal out-flows. You expect to be able to earn 8 percent on your investments during the next five years and wish to fund the budget shortfalls over these years with a single initial deposit.

End of Year Budget Shortfall

1 $ 5,000
2 4,000
3 6,000
4 10,000
5 3,000

a. How large must the single deposit today into an account paying 8% annual interest be to provide for full coverage of the anticipated budget shortfalls?

b. What effect would an increase in your earnings rate have on the amount calculated in part a? Explain.

Purchase this Solution

Solution Summary

The solution explains how to calculate the amount needed to meet the budget shortfall.

Solution Preview

a. The single deposit would be the present value of shortfalls. Since the shortfalls are different amounts we can treat then as a single sum in ...

Purchase this Solution


Free BrainMass Quizzes
IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Operations Management

This quiz tests a student's knowledge about Operations Management

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Motivation

This tests some key elements of major motivation theories.