A year ago, you deposited $40,000 into a retirement savings account at a fixed rate of 5.5 percent.

A year ago, you deposited $40,000 into a retirement savings account at a fixed rate of 5.5 percent. Today, you could earn a fixed rate of 6.5 percent on a similar type account. However, your rate is fixed and cannot be adjusted. How much less could you have deposited last year if you could have earned a fixed rate of 6.5 percent and still have the same amount as you currently will when you retire 38 years from today?    A.  $10,118.42 less B.  $10,333.33 less C.  $11,417.09 less D.  $12,274.12 less E.  $12,313.30 less Future value = $40,000 × (1 + .055)38+1 = $322,779.48 Present value = $322,779.48 × [1/(1 + .065)38+1] = $27,686.70 Difference = $40,000 - $27,686.70 = $12,313.30

40.

When you retire 40 years from now, you want to have $1.2 million. You think you can earn an average of 12 percent on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum 2 years from today. How much more will you have to deposit as a lump sum if you wait for 2 years before making the deposit?    A.  $1,414.14 B.  $2,319.47 C.  $2,891.11 D.  $3,280.78 E.  $3,406.78 Present value = $1,200,000 × [1/(1 + .12)40] = $12,896.16 Present value = $1,200,000 × [1/(1 + .12)38] = $16,176.94 Difference = $16,176.94 - $12,896.16 = $3,280.78

41.

Theo needs $40,000 as a down payment for a house 6 years from now. He earns 2.5 percent on his savings. Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum. How much additional money must he deposit if he waits for one year rather than making the deposit today?    A.  $778.98 B.  $811.13 C.  $862.30 D.  $948.03 E.  $1,020.18 Present value = $40,000 × [1/(1 + .025)6] = $34,491.87 Present value = $26,000 × [1/(1 + .025)5] = $35,354.17 Difference = $35,354.17 - $34,491.87 = $862.30