Exam 5: The Time Value of Money

You decide you want your child to be a millionaire.You have a son today and you deposit $10,000 in an investment account that earns 7% per year.The money in the account will be distributed to your son whenever the total reaches $1,500,000.How old will your son be when he gets the money (rounded to the nearest year)?

You deposit $5,000 per year at the end of each of the next 25 years into an account that pays 8% compounded annually.How much could you withdraw at the end of each of the 20 years following your last deposit if all withdrawals are the same dollar amount? (The twenty-fifth and last deposit is made at the beginning of the 20-year period.The first withdrawal is made at the end of the first year in the 20-year period.)

To compound $100 quarterly for 20 years at 8%,we must use

The future value of a 10-year ordinary annuity is twice as much as the future value of an otherwise identical 5-year annuity.