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Math Help - No one can seem to help on this problem... :(

  1. #1
    Junior Member
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    No one can seem to help on this problem... :(

    Hey all, have a test tomorrow and she said a problem similar to this will be on it. All help appreciated.

    On her 23rd birthday, an engineer decides to put away money. The fund pays 8% interest, compounded quarterly. She feels that $600,000 worth of purchasing power in todays dollars will be enough to pay her bills, after her 63rd birthday. Assume a general inflation rate of 6% per year.

    A) If she makes 160 equal quarterly deposits, what should the amount of each of these payments be-in actual dollars?

    B) If she plans to save by making end of the year deposits, increasing by $1000 over each subsequent year, how much is her first deposit, in actual dollars?
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  2. #2
    Super Member malaygoel's Avatar
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    With inflation rate of 6%
    $600,000 after 40 years will be
    600000(1+.06)^{40}

    Let M be each instalment.
    At the end of 40 yr, total amount will be M.\frac{1.02^{161}-1}{1.02-1}

    Equating these two, we get,M=5090.47
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  3. #3
    Super Member
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    Quote Originally Posted by amor_vincit_omnia View Post
    Hey all, have a test tomorrow and she said a problem similar to this will be on it. All help appreciated.

    On her 23rd birthday, an engineer decides to put away money. The fund pays 8% interest, compounded quarterly. She feels that $600,000 worth of purchasing power in todays dollars will be enough to pay her bills, after her 63rd birthday. Assume a general inflation rate of 6% per year.

    A) If she makes 160 equal quarterly deposits, what should the amount of each of these payments be-in actual dollars?

    B) If she plans to save by making end of the year deposits, increasing by $1000 over each subsequent year, how much is her first deposit, in actual dollars?
    With inflation rate of 6%
    $600,000 after 40 years will be
    = $6,171,431

    The 8% quarterly compounding equates to approximately 8.25% annually that must then be played agained the 6% inflation rate. A net gain of about 2.5 % for the contributions each year.
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