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Investments Scenarios - Time Value of Money

A. Starting with \$10,000, how much will you have in 10 years if you can earn 15 percent on your money?
b. If you inherited \$25,000 today and invested all of it in a security that paid a 10 percent rate of return, how much would you have in 25 years?
c. If the average new home costs \$125,000 today, how much will it cost in 10 years if the price increases by 5 percent each year?
d. If you can earn 12 percent, how much will you have to save each year if you want to retire in 35 years with \$1 million?

Solution Preview

a. Starting with \$10,000, how much will you have in 10 years if you can earn 15 percent on your money?

We have a lump sum and we have to find the future value. The future value of a lump sum is calculated as
Future Value (FV)= Present Value (PV) X (1+r)^n
Where r is the interest rate and n is the time period. In this problem
PV = 10,000
R=15%
N=10 years
FV = 10,000 X (1+15%)^10 = 40,455.58
In 10 years you will have ...

Solution Summary

The solution has various questions relating to time value of money

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