Eastman Kodak Analysis
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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.