What are the keywords used to determine what formula you will use in long finance problems?
i have some example problems below, i'm having trouble understanding how to differentiate what each problem is asking you to find. If you could please list some keywords in problems such as i have listed that are identifiers for what the problem is asking for that would be extremely helpful. Thanks.
-
Walter wants to save money to meet two objectives. First, he would like to be able to retire 30 years from now with a retirement income of $300,000 per year for 20 years beginning at the end of the 31 years from now. Second, he would like to purchase a cabin in the mountains 10 years from now at an estimated cost of $350,000. He can afford to save only $40,000 per year for the first 10 years. He expects to earn 7 percent per year from investments. Assuming he saves the same amount each year, what must Walter save annually from years 11 – 30 to meet his objectives? -
Your younger brother has come to you for advice. He is about to enter college and has two options open to him. His first option is to study engineering. If he does this, his undergraduate degree would cost him $12,000 a year for four years. Having obtained this, he would need to gain two year of practical experience: In the first year he would earn $20,000, in the second year he would earn $25,000. He would then need to obtain his master’s degree, which will cost $15,000 a year for two years. After that he will be fully qualified and can earn $40,000 per year for 25 years.
His other alternative is to study accounting. If he does this, he would pay $13,000 a year for four years and would then earn $31,000 per year for 30 years.
The effort involved in the two careers is the same, so he is only interested in the earning the jobs provide. All earnings and costs are paid at the end of the year. What advice would you give him if the market interest rate is 5 percent? A day later he comes back and says he took your advice, but in fact, the market interest rate was 6 percent. Has your brother made the right choice?
Posted Feb 25, 2016, 1:07 AM UTC