Assume that twenty years from now, you will need $50,000 and that your bank compounds...
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Accounting
Assume that twenty years from now, you will need $50,000 and that your bank compounds interest at a 2 percent annual rate.
A. How much do you need to deposit today in order to have a balance of $50,000 in 20 years? Explain and show your work.
B. Suppose instead that you want to make equal payments in years 1 through 19 to accumulate $50,000 in year 20, how large must each of the 19 payments be? Explain.
C. If your (very reliable) aunt were to offer to make the payments found in part (B) for you or to give you $35,000 one year from now, which would you choose? Explain. (Even if you could not solve for the answer in part B, please explain what criterion you would use to make the choice.)
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