Does anyone know the formula for this??

- anonymous

Does anyone know the formula for this??

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- amistre64

what is our definition of "economy growth rate" ?

- anonymous

This is all the information i got... :/ Would it be like every year the economy would increase its rate up 3.4%?

- amistre64

i think, im not sure, it is equivalent to an interest rate

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- amistre64

lets google it to be sure, so we dont head down a wrong path

- amistre64

yeah, it not real readable to me. and i cant find a simple explanation of it that i can comprehend that well.
is 1 dollar worth more or less when the economy grows?

- anonymous

I have no idea... :/ So there's like no easy formula to use for this?

- amistre64

im not taking your course, so i dont know what your material provides you. If we knew for sure that we can just use the egr as an equivalent to an interest rate ... the solution is simple enough.

- anonymous

Could we solve it like with the Present Value or Future Value formula? I have those.

- amistre64

yes, as long as we can assume EGR is an equivalent to interest rate in this problem.

- amistre64

an annuity is simply a loan, that is being paid ...
annuity due start off the balance with the amount of a payment, where as an ordinary annuity start off the balance as 0
we have an annutiy due
F = Pk^t + P(k^t-1)/(k-1), such that k = 1+ r
F = Nk^t, is the compounding formula
the present value (the NOW value) is N
Nk^t = Pk^t + P(k^t-1)/(k-1)
N = P + P(k^t-1)/(k^t(k-1))

- amistre64

9003 + 9003(k^9-1)/(k^9(k-1)), k=1+.034
which isnt an option ...

- anonymous

Oh, so you solved that already and it isnt an option listed? :( Maaan... Now what?

- amistre64

well, now we need a better understanding of how your material teaches that EGR affects the value of a dollar

- amistre64

id hate to make some test ideas and come up with more than one option being valid. it would be simpler to search your materials and see what they have opted for

- anonymous

Okay. Well thanks for helping anyways. :) There are some other questions im stuck on though. Would you mind helping?

- amistre64

as long as they dont invlove an EGR we might be fine :)

- amistre64

on this one im getting 77812 assuming EGR is an interest rate equivalent
so something close to that is what I would "GUESS" as a solution.

- amistre64

Daniel is 31 years old and planning to retire at age 63.
what is our time span?
He will invest an average of $215 each month with an average annual return of 2.9%
annuity due is just a payment BEFORE interest is added in, and it
is usually stated as 'deposited at the beginning of the month'
this has no indication of beginning of month, so ordinary should be proper.

- amistre64

215(k^(32*12))/(k-1), k=1+.029/12
which i DO get as one of the options

- amistre64

i dont have tables so I use my own formulations :)

- anonymous

Ok. Let me solve that quick and ill get back to you. Thanks! :)

- amistre64

how would you say the tax information plays into this?

- anonymous

So its asking us to find how much money will be in her account at the time of retirement?

- amistre64

she has to withdraw it at some time. so the effective value ... let me get a definition on this (its either balance, or useable value)

- amistre64

how do you define effective value?
If I have $10, but can only access $8, then do I effectively have $8 instead of $10?

- anonymous

Well if you have $10 but can only get $8, then i would think youd still have $10, you just cant use all of it.

- amistre64

if I use it, i get charged a fee (a tax?) or $2
lets say I pull it out of an ATM, that charges me $2 to access my own money ....

- anonymous

Ohhh. That makes sense. I did find this online calculator for the IRA, but it didnt give me the right answer. I thought maybe you'd wanna check it out.
http://www.timevalue.com/products/tcalc-financial-calculators/traditional-ira-calculator.aspx?CONTRIBUTION=1625&YEARSTILLRETIREMENT=43&ROI=4.9&TAXBRACKETRETIRE=15&COMPUTE=COMPUTE&CALCULATORID=RC02&HIDEFORMTAG=TRUE&TEMPLATE_ID=www.timevalue.com_1&PostBack=true

- amistre64

ok, so we want the value after we withdraw it ... we get to keep 100-15 = 85% of it

- amistre64

1625(k^(43)-1)/(k-1), k=1+.049/12
the value i the account is therefore 226257, what is 85% of that?

- amistre64

your online calc assumed an annuity due, use 42 instead of 43 on it

- amistre64

or yeah, the table shows a year balance at 43 as 226k

- amistre64

and yes, 192k is 85% of it

- anonymous

So i should go with your answer? D?

- amistre64

I would go with my answer ... your free to use whatever you feel more confident with :)

- amistre64

my method gives us an exact option, the online does not

- amistre64

that divide by 12 is not accurate, when we have say monthly deposits, we want to adjust the compounding interest rate over 12 months in a year
since we are working with a yearly deposit ... r/1 = r other than that yeah
k = 1+.053

- anonymous

Ok cool! Let me figure that out here and ill let you know what i get. :)

- amistre64

ROTH IRA, i dont think theres a tax penalty on it ...

- amistre64

Roth is a better investment, I have heard that it is a better investment in that you dont get taxed twice on your money.
A tradiation IRA, you work, get a paycheck, and they take out taxes ... you use the taxed money to build an IRA with, and then when you remove the taxed money, you get taxed again.
Roth IRA, I believe, does not tax you the second time.

- amistre64

Your material should define the Roth IRA, along those terms I beleive.
so we are able to withdraw the total amount of the account with no penalty of taxation.

- anonymous

Oh so i guess i didnt do the total * the 85% so that would still be my answer right?

- amistre64

not according to my understanding of it. 85% is the result of a tax penalty
without the tax penalty, the ROTH gives you 100%
im just not sure if there is a taxed portion of it, like say on the interest ...

- amistre64

this is where if i had some materials to review i could make a more informed decision

- amistre64

i think, you only get taxed on the interest earned (since that is an extra source of income)

- anonymous

Ok. I think thats it for questions! Im working on one right now but i think i know how to figure it out. Ill let you know! Thanks so much for all your help!! :)

- amistre64

ok, but for my own sake
lets assume interest is taxable ... at 15%
3175*34 = 107950 is the total payments we have put in, it is equivalent to a loan amount
total cost = loan + interest, and total cost has been determined alredy
(3175(k^(34)-1)/(k-1)), k=1+.053 = 286857
286857 - 107950 = interest
178907 is what we get taxed on, and we get to keep 85% of it soo
107950 + 178907(.85) = net worth
Payments interest

- anonymous

Oh. Well i already submitted it, but thanks for the clarification!

- amistre64

I cant tell now what the options were to compare with ...

- amistre64

i could always look up the deleted portions, they are never deleted from teh database in case a school wants to review a students conduct on this site.

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