1. You plan to go away on a cruise for your five-year anniversary. You estimate that the trip will cost about $10,000.
a. What formula would you use to determine how much money to place in savings today to have enough for the cruise in five years?
(1) FV/(1 −
i)n
(2) FV/(1 +
n)i
(3) FV/(1 −
n)i
(4) FV/(1 +
i)n
b. If you decided to compute the value using the reference table method, what factor would you use if you were earning a 4% interest rate annually?
(1) 0.8219
(2) 5.4163
(3) 1.2167
(4) 4.4521
c. If using a calculator, which values would you use to solve for PV?
(1) N = 5; I/YR = 4; FV = 10,000; PMT = 0
(2) N = 5; I/YR = 4; FV = −10,000; PMT = 0
(3) N = 5; I/YR = 4; FV = 0; PMT = 10,000
(4) N = 5; I/YR = 4; FV = 0; PMT = −10,000
d. How much of the gift money should you deposit today to have enough in savings to pay for the anniversary cruise?
(1) $8,219
(2) $5,416
(3) $12,167
(4) $4,451