Inflation causes things to cost more, and for our money to buy less (hence your grandparents saying "In my day, you could buy a cup of coffee for a nickel"). Suppose inflation decreases the value of money by 5% each year. In other words, if you have $1 this year, next year it will only buy you $0.95 worth of stuff. How much will $100 buy you in 15 years?
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- Inflation causes things to cost more, and for our money to buy less (hence your grandparents saying "In my day, you could buy a cup of coffee for a nickel"). Suppose inflation decreases the value of money by 2% each year. In other words, if you have $1 this year, next year it will only buy you $0.98 worth of stuff. How much will $100 buy you in 15 years?$You plan to retire in 30 years and want to accumulate enough by then to provide yourself with $30,000 a year for 15 years.a. If the interest rate is 10%, how much must you accumulate by the time you retire? How much must you save each year until retirement in order to finance your retirement consumption?b. Now you remember that the annual inflation rate is 4%. If a loaf of bread costs $1 today, what will it cost by the time you retire?c. You really want to consume $30,000 a year in real dollars during retirement and wish to save an equal real amount each year until then. What is the real amount of savings that you need to accumulate by the time you retire?d. Calculate the required preretirement real annual savings necessary to meet your consumption goals.e. What is the nominal value of the amount you need to save during the first year? (Assume thesavings are put aside at the end of each year.) What is the nominal value of the amount you need to save during the 30th year?1.) Starting with $15,000, how much will you have in 10 years if you can earn 6 percent on your money? 2.) If you can earn only 4 percent? If the average new home costs $275,000 today, how much will it cost in 10 years if the price increases by 5 percent each year? 3.) If you can earn 4 percent, how much will you have to save each year if you want to retire in 35 years with $1 million?
- You have $100 to invest for 1 year at a rate of 10%. Bread sells for $2 today and that means you can buy 50 loaves today. Bread is expected to have a 4% inflation next year. what is your real rate of return? How many loaves of bread can you buy next year?Li is amazed that he will be able to accumulate over $600,000. However, he knows that inflation will increase his cost of living significantly in 30 years. He assumes 3% inflation and wants to find the income he needs at age 67 to have the same purchasing power as $40,000 today. (Hint: Look at inflation in Section 10.2 and use the compound interest table in Section 10.1.Shelly Franks is planning for her retirement, so she is setting up a payout annuity with her bank. She is now 35 years old, and she will retire when she is 65. She wants to receive annual payouts for twenty years, and she wants those payouts to receive an annual COLA of 4%. a. She wants her first payout to have the same purchasing power as does $15,000 today. How big should that payout be if she assumes inflation of 4% per year? b. How much money must she deposit when she is 65 if her money earns 8.3% interest per year? c. How large a monthly payment must she make if she saves for her payout annuity with an ordinary annuity? (The two annuities pay the same interest rate.) d. How large a monthly payment would she make if she waits until she is 40 before starting her ordinary annuity?
- 1. Welma wants to buy an elephant but she does not currently have the 14,000 required to buy the type of elephant she wants.I A. If she hopes to buy the elephant at this same price in three years, how much does she need to invest in 5% annually compounding T-bills at this moment in time to have enough money in three years? B. Assume that in three years elephants now cost $16,000. If elephants are good representations of current inflationary pressures. What is the effective yearly real rate of return on the T-bills?You'd like to have $1,000,000 saved in 35 years so that you can retire a little bit early. If you can make 9.5% on your money annually, how much do you need to save annually?Suppose the inflation rate is predicted to be 2.4% this year. If it cost a family $6800 for groceries last year, what will it likely cost them this year?
- How much do you need to save each year for 30 years in order to have $775,000, assuming you are investing the money in an account that earns 8%? How much of the $750,000 comes from principal (you’re out of pocket costs)?Assume you are thinking of buying a house currently priced at $169,000. If housing prices rise at an annual inflation rate of 3%, estimate the purchase price of a similar house if you wait 4 years before committing yourself to buying one. Suppose when you are 52 years old, the yearly statement you get from the Social Security Administration estimates that your monthly payment at age 66 will be $620. If inflation stays constant at 2%, what will be the purchasing power of that $620? Calculate the effective annual rate for an investment that earns 7.1% interest compounded quarterly. Round to the nearest hundredth of a percent. What is the effective annual interest rate of an investment that pays 7.6% annual interest, compounded quarterly? Round to the nearest hundredth of a percentsuppose you are planning to buy a home in 8 years from now that costs you 47114 OMR, How much should you save each year in your bank account that pays 6.012 percent to reach your goal?