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Time Value of MoneyAssume that 4 years from now you will need $1,000. Your bank compounds interest at an8% annual rate.a. How much must you deposit 1 year from now to have a balance of $1,000 at Year 4?b. If you want to make equal payments at the end of Years 1 through 4 to accumulatethe $1,000, how large must each of the 4 payments be?c. If your father were to offer either to make the payments calculated in part b ($221.92)or to give you a lump sum of $750 one year from now, which would you choose?d. If you will have only $750 at the end of Year 1, what interest rate, compoundedannually, would you have to earn to have the necessary $1,000 at Year 4?e. Suppose you can deposit only $186.29 each at the end of Years 1 through 4, but youstill need $1,000 at the end of Year 4. What interest rate, with annual compounding,is required to achieve your goal? |
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