On January 1,2006,a Graduate Student Developed a 5-Year Financial Plan

question 57

Multiple Choice

On January 1,2006,a graduate student developed a 5-year financial plan which would provide enough money at the end of her graduate work (January 1,2011) to open a business of her own.Her plan was to deposit $8,000 per year for 5 years,starting immediately,into an account paying 10 percent compounded annually.Her activities proceeded according to plan except that at the end of her third year (1/1/09) she withdrew $5,000 to take a Caribbean cruise,at the end of the fourth year (1/1/10) she withdrew $5,000 to buy a used Prelude,and at the end of the fifth year (1/1/11) she had to withdraw $5,000 to pay to have her dissertation typed.Her account,at the end of the fifth year,was less than the amount she had originally planned on by how much?

• A) $15,373
• B) $16,550
• C) $32,290
• D) $38,352
• E) $13,975

---

Definitions:

Interest Rate

The cost of borrowing money expressed as a percentage of the total amount borrowed, or the interest income earned on an investment.

Demand

The desire to purchase goods and services backed by the ability and willingness to pay, at a specified price.

Loanable Funds

A concept in economics that describes the market where borrowers and lenders meet to transact loans or bonds.

Nominal Interest Rate

The interest rate before adjustments for inflation; the rate quoted by financial institutions.