Reference no: EM132827891

Question - Tommy and Timmy have both been given $50,000 by their grandparents today on their 21st birthdays. They want to save for their future and have aspirations of one day being millionaires. Both boys plan to make annual contributions on their birthday, beginning next year. Tommy and Timmy have each opened investment accounts at Amegy Band and Woodforest Bank, respectively, and they expect to earn nominal returns of 8% and 9% respectively. Tommy has already decided to deposit $8,000 each year into his investment account, while Timmy is unsure of the amount he will deposit annually.

1. How many years will it take Tommy before he reaches his investment goal of $1 million?

a. 25.31

b. 25.89

c. 23.90

d. 32.45

e. 35.76

2. If Timmy decides to make the same annual contributions as Tommy, how much sooner (in years) would he reach the investment goal?

a. 1.41

b. 1.99

c. 3.75

d. 4.00

e. 4.25

3. Suppose Timmy was interested in reaching the investment goal at the same time as Tommy. What is the minimum monthly contribution he could make to reach $1 million at the same time as Tommy?

a. $7,683.32

b. $11,062.44

c. $5,310.29

d. $5,788.22

e. $8,928.52