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Budgeting and investments

As part of your personal budgeting process you have determines that in each of the next 5 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, to make inflows equal outflows. You expect to earn 9% on your investments during the next 5 years and wish to fund the budget shortfalls over the next 5 years with a single amount. 7,000 4,000 8,000 10,000 13,000

A. How large must the single deposit today into an account paying 8% annual interest be provided 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.

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As part of your personal budgeting process, you have determined that in
each of the next 5 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, to make inflows equal outflows.
You expect to be able ...

Solution Summary

This solution is comprised of a detailed explanation to answer how large must the single deposit today into an account paying 8% annual interest be provided for full coverage of the anticipated budget shortfalls and what effect would an increase in your earnings rate have on the amount calculated in part a.

$2.19