Eastman Kodak Analysis

This paper solves questions on the Time Value of Money)

1. You would like to take a cruise in six years. The cruise currently costs $4,250. You expect the price to increase by 4% annually. You can earn 5% on your savings. How much do you need to save at the end of each month so you can afford your cruise in six years?

Current Cost of Cruise: $ 4,250

Price Increase Per Year: 4% or 0.04

Cost after 6 Years: 4250 x (1.04)6

= 4250 x 1.2563

= $ 5,339.27

Savings Rate = 5% = 0.05

The question as to how much would one need to save per month so that they can afford a cruise of $5,339.27 in 6 years is the same as asking: What amount of money per month would one have to invest @5% in order to save $ 5,339.27 in 6 years.

Since the saving occurs each month, there would be 6 x 12= 72 interest periods.

Answer is given by the formula: 5339.27 / PVIFA(1+.05/72)72

Tables for 72 interest periods were not available, so only the formula is given.

2.