Answer: a. $12,022
b. $499,896
c. $148
Explanation:
a. What equal amount of money did he put Into his Investment at the end of each year?
Let the equal amount be represented by a.
Therefore, $2,400,000 = FV(7%,40,xa
Based on the information given in the question, we'll then use excel function,
a = PMT(7%, 40, 2400000)
= 12,022
Therefore, the equal amount of money did he put Into his Investment at the end of each year is $12022.
b. What is the buying power of his $2,400,000 in terms of a base 40 years ago?
Let the buying power be represented by x.
Based on the information given in the question,
x × (100% + 4%)^40 = 2,400,000
x × (1.04)^40 = 2400000
x × 4.8010 = 2400000
4.8010x = 2400000
x = 2400000/4.8010
x = 499,895.86
x = 499,896
Therefore, the buying power is $499,896.
c. If he could buy a TV 40 years ago for $500, what would a comparable one cost today if the consumer electronics inflation rate is -3 percent?
The price of TV today will be:
= $500 × (1 - 3%)^40
= $500 × (1 - 0.03)^40
= $500 × 0.97^40
= $500 × 0.29571
= $148
Therefore, the price of the tv will be $148
