How large must the lump sum deposit into an account

Assignment Help Financial Management

Reference no: EM131334531

As part of your personal budgeting process, you have determined that in each of the next five years you will have budget shortfalls. In other words, you 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 to earn 8 percent on your investments during the next five years and want to fund the budget shortfalls over these years with a single initial deposit.

End of year	Budget Shortfall
1	$ 5,000
2	4,000
3	6,000
4	10,000
5	3,000

a. How large must the lump-sum deposit into an account paying 8 percent annual interest be today to provide for full coverage of the anticipated budget shortfalls?

b. What effect does an increase in your earnings rate have on the amount calculated in part (a)? Explain.

Reference no: EM131334531

Questions Cloud

Market for corn is perfectly competitive : Suppose that the market for corn is perfectly competitive. If corn farmers are currently generating losses, then we would expect that in the long run the market?

Determining the specific currency crisis : A number of currency crises have affected certain countries, which have also resulted in contagion in the sense that the crises affected neighboring countries. In a critical essay, select a country (or countries) affected by a specific currency cri..

Nettie consume if becky consumes hamburgers : After trade, how many hamburgers will Nettie consume if Becky consumes 4 hamburgers? How many cupcakes will Becky consume if Nettie consumes 4 cupcakes?

Bank demand immediate repayment of all existing loans : On the basis of your analysis, shoul Karen recommen that the bank extend the existing short- and long- term loans and grant the additional $6,375,000 loan, or that the bank demand immediate repayment of all existing loans? If she does recommend conti..

How large must the lump sum deposit into an account : How large must the lump-sum deposit into an account paying 8 percent annual interest be today to provide for full coverage of the anticipated budget shortfalls?

Money wage rate rose india aggregate supply : In the short run when US firms moved thrit IT and data functions to India India's aggregate supply? When the money wage rate rose India's aggregate supply? When the price level in India increased Indias aggregate supply?

No differential tax treatment between the two options : Assuming no differential tax treatment between the two options and that Ruth earns a return of 8 percent on her investments, which offer should she take?

Validity of comparative ratio analysis be questionable : Under what circumstance might the validity of comparative ratio analysis be questionable? Answer this question in general, not just for Mark X data to illustrate your points

Large gas guzzling vehicles : A sudden and sharp increase in gas prices will have what impact on the market for the following (be sure to discuss both supply and demand):

User Account

All Pages