Suppose you have 1000 dollars and you decide to use it to purchase a Certificate of Deposit (a "CD") that matures in three years, with a yield of 9 percent. Interest in the CD is paid quarterly. How much will you have at the end of the three years?
Suppose you are trying to save for a dirt bike that costs $2400. Based on your job, and expenses, you think you can save about $140 a month for the bike. Let's assume you set up an automatic monthly deduction from your pay check into a money market savings program offered by your employer, that pays 8 percent interest. How long will it take to save $2400?
Suppose you want to send your daughter on a trip to Europe in the spring (say 9 months from now). You have to have $4000 saved by then. Let's assume you have a mutual fund that has been paying about 13% on average. How much will you need to put into the fund each month to accumulate the $4000 by the end of the 9 months?
Suppose you intend to save for retirement, which is 22 years from now. Suppose you have a portfolio of various stocks, bonds, mutual funds, and money market funds that has been paying about 15% each year on average, and that you want to assume this will continue until you retire. Let's suppose that you can afford to deposit $500 a month from your salary into the retirement fund. Let's also suppose that you get a 5% raise in July of each year and that would like to increase your monthly deposit by 5% each July. Last of all, let's suppose that you have been getting an annual bonus of $1500 each year at Christmas time and that you plan to put $1000 of this into savings each January. How much will you have accumulated by retirement?
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