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5. Bill now takes his money and turns it into an annuity to be paid out over 30 years, while earning 7%
interest. How much money will he get each year? How much money will he get over the 30-year life
of the annuity? (And all this because he let $810 grow for MANY years!)
6. You hope to amass a million dollars by the time you retire in 30 years. Assuming a constant 4%
inflation rate, what will be the purchasing power of that million when you retire? (i.e., find the
present value of that million dollars.)
H
ardest Problem
How hard
can
it be? Can you still use what you’ve learned?
Based on the Models, the Methodologies, and the Demonstrate Your Understanding (DYU) problems in
this activity, create the
hardest
problem you can. Start with the hardest DYU problem in this experience
and by contrasting and comparing it with the other DYU problems, play “What if” with the different
conditions and parameters in the various problems.
Can you still solve the problem? If so, solve it. If not, explain why not.
What are the conditions and parameters that make a problem where you calculate the time value of money a
difficult problem to solve?
T
roubleshooting
Find the error and correct it!
Fred is trying to find the present value of a set of $300 deposits he plans to make each month in his
savings account for the next year at 5.5% annual interest rate. He uses the Excel PV financial function
as follows:
5.5 PV(
, 12, -300)
12
He was surprised that the present value spewed out by the computer was only a little more than $600
even though he was going to invest $3,600. What was Fred’s error and how would he fix it? Was the
present value more or less than $3,600? Why?
M
aking it Matter
Solving problems in your life
●
Since 2000, the inflation rate has mostly ranged between 1% and 4%, with some deflation (negative
inflation) actually occurring in 2009. But in March of 1980, inflation rose to 14.76%, and back in March
of 1947, the inflation rate hit a high of 19.67%. If either of those high levels of inflation were to continue,
what would be the present value of that million dollars you plan to accrue by the time you retire in 30
years? (References available on the companion website.)
L
earning to Learn Mathematics
Reflecting on and appreciating your learning
1. What did you learn about learning to use formulas in the video clips?
2. What did you learn about learning Excel mathematical/financial functions?
3. What did you learn about how exponential growth relates to the value of money?
8.2 Time Value of Money