Section PF.10 – Practice Problems

Note: If your final answer is a dollar amount then it should be rounded to the nearest cent.

1. You deposit $1,000.00 each year into an account earning 4% interest compounded annually. How much will you have in the account in 25 years?

2. You deposit $3,000.00 each year into an account earning 7% interest compounded annually. How much will you have in the account in 15 years?

3. You deposit $1,000.00 each year into an account earning 8% compounded annually.

a. How much will you have in the account in 10 years?
b. How much money will you have put into the account?
c. How much interest will you have earned?

4. You deposit $100.00 each month into an account earning 6% interest compounded monthly.

a. How much will you have in the account in 15 years?
b. How much money will you have put into the account?
c. How much interest will you have earned?

5. You deposit $200.00 each month into an account earning 3% interest compounded monthly.

a. How much will you have in the account in 30 years?
b. How much money will you have put into the account?
c. How much interest will you have earned?

6. Suppose you want to have $500,000.00 for retirement in 20 years. Your account earns 10% interest compounded monthly.

a. How much would you need to deposit in the account each month?
b. How much money will you have put into the account?
c. How much interest will you have earned?

7. Jose has determined he needs to have $800,000.00 for retirement in 30 years. His account earns 6% interest compounded monthly.

a. How much would you need to deposit in the account each month?
b. How much money will you have put into the account?
c. How much interest will you have earned?

8. You wish to have $3,000.00 in 2 years to buy a new stereo system. How much should you deposit each quarter into an account paying 8% compounded quarterly?

9. To save for retirement, Rocio deposits $400.00 each month into an account earning 7% interest compounded monthly for 25 years. How much will Rocio have saved for her retirement? Alternatively, Rocio could make a single deposit into an account earning 7% interest compounded monthly for 25 years. How much would her lump sum deposit (single deposit) have to be in order to have saved the same amount of money for retirement?

10. To save for a down payment on a house, Lucille deposits $500.00 each month into an account earning 4% interest compounded monthly for 5 years. How much will Lucille have saved for her down payment? Alternatively, Lucille could make a single deposit into an account earning 4% interest compounded monthly for 5 years. How much would her lump sum deposit (single deposit) have to be in order to have saved the same amount of money for her down payment?

11. To save for retirement, Cristina deposits $300.00 each month into an account earning 8% interest compounded monthly for 30 years. How much will Cristina have saved for her retirement? Alternatively, Cristina could make a single deposit into an account earning 8% interest compounded monthly for 30 years. How much would her lump sum deposit (single deposit) have to be in order to have saved the same amount of money for retirement?

12. Suppose you invest $140.00 a month for 6 years into an account earning 7% compounded monthly. After 6 years, you leave the money, without making additional deposits, in the account for another 26 years. How much will you have in the end?

13. Suppose you invest $170.00 a month for 5 years into an account earning 6% compounded monthly. After 5 years, you leave the money, without making additional deposits, in the account for another 29 years. How much will you have in the end?

14. Lucy invests $130.00 a month for 7 years into an account earning 9% compounded monthly. After 7 years, she leaves the money, without making additional deposits, in the account for another 23 years. Alternatively, Monica didn’t invest anything for the first 7 years, then deposited $130.00 a month for 23 years into an account earning 9% compounded monthly.

a. How much money will Lucy have in her account at the end of this 30 year period?

b. How much money will Monica have in her account at the end of this 30 year period?

c. How much of the amount in Lucy’s account is interest?

d. How much of the amount in Monica’s account is interest?

e. Which account had more money in it? Which account earned more interest? Based on these observations, who made the better investment?

15. Robert invests $180.00 a month for 6 years into an account earning 10% compounded monthly. After 6 years, you leave the money, without making additional deposits, in the account for another 20 years. Alternatively, Nick didn’t invest anything for the first 6 years, then deposited $180.00 a month for 20 years into an account earning 10% compounded monthly.

a. How much money will Robert have in his account at the end of this 26 year period?

b. How much money will Nick have in his account at the end of this 26 year period?

c. How much of the amount in Robert’s account is interest?

d. How much of the amount in Nick’s account is interest?

e. Which account had more money in it? Which account earned more interest? Based on these observations, who made the better investment?