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# Interest and the time value of money

1)You would like to take a cruise in six years. The cruise currently costs \$4,250. You expect the price to increase by 4% annually. You can earn 5% on your savings. How much do you need to save at the end of each month so you will be able to afford your cruise in six years?

2)You invest \$250 in your savings account at the end of each year and earn an average of 6% per year in interest. How much will you have in your savings account at the end of forty years?

3)You want to have \$40,000 to buy a new boat in six years. How much do you have to save at the end of each year to reach this goal if you earn 5% a year on your savings?

SHOW ALL WORK FOR EACH ASSIGNMENT AND EXPLAIN EACH STEP CAREFULLY.

#### Solution Preview

1)You would like to take a cruise in six years. The cruise currently costs \$4,250. You expect the price to increase by 4% annually. You can earn 5% on your savings. How much do you need to save at the end of each month so you will be able to afford your cruise in six years?

Future amount= 4250 x 1.04 ^6= 4250 x 1.27= \$5377.61
Since you can earn 5% on your savings, 5377.61 ...

#### Solution Summary

Interest and the time value of money are investigated. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.

\$2.19