1. If Barry purchases a $2,000 Roth IRA when he is 25 years old and expects to earn an average of 6% per year compounded annually over 35 years (until he is 60), how much will accumulate in the investment?
• 2. If Barry doesn’t put the money in the IRA until he is 35 years old, how much money will accumulate in the account by the time he is 60 years old using the same return of 6%? How much less will he earn because he invested 10 years later?
• 3. Barry knows that the interest rate is critical to the speed at which your investment grows. For instance, if $1 is invested at 2% compounded annually, it takes approximately 34.9 years to double. If $1 is invested at 5% compounded annually, it takes approximately 14.2 years to double. Use Table 13-1 to determine how many years it takes $1 to double if invested at 10% compounded annually; at 12% compounded annually.
• 4. At what interest rate would you need to invest to have your money double in 10 years if it is compounded annually?
5. How much interest will Abdol receive on $1,000 in a 365-day year if he keeps it in the money market account earning 1.00% compounded daily?
• 6. How much money must Abdol shift from his other accounts to his emergency fund to have four times his monthly bills in the account by the end of the year?
• 7. Abdol realizes he needs to earn more interest than his current money market can provide. Using annual compounding on an account that pays 5.5% interest annually, find the amount Abdol needs to invest to have the $8,000 down payment for his house in 5 years.
• 8. Is 5.5% a realistic rate for Abdol to earn in a relatively short-term investment of 5 years, particularly at his bank?
Answer will be sent by email as attachment.
