Your only child will go to college 10 years from now. Your salary is $80,000 a year, and is expected to rise with inflation, which is about 3% annually. Tuition is currently about $40,000 a year, but growing by 5% yearly. What percentage of your salary would go to pay for the first year of your child’s college education?
Morgan Stanley’s wealth management unit offers to invest profits of $750,000 made by an artist on a world tour at 7% compounded semi-annually, locking the money for three years.
What will the cash out be?
The total interest paid on an investment is the difference between cash out, or A, and cash in, or P; that is, I = A – P. What is the total interest earned by the investment?
“The MacArthur Fellowship is a $625,000, no-strings-attached award to extraordinarily talented and creative individuals as an investment in their potential. There are three criteria for selection of Fellows: (1) Exceptional creativity; (2) Promise for important future advances based on a track record of significant accomplishments; and (3) Potential for the Fellowship to facilitate subsequent creative work. Each fellowship comes with a stipend of $625,000 to the recipient, paid out in equal quarterly installments over five years (therefore, $31,250 per quarter).”
One of the recipients in 2019 was “Mary Halvorson, a guitarist, ensemble leader, and composer who is pushing against established musical categories with a singular sound on her instrument and an aesthetic that evolves with each new album and configuration of bandmates. She melds her jazz roots with elements of experimental rock, folk, and other musical traditions, reflecting a wide range of stylistic influences.”
Supposing that at the end of every quarter Mary is depositing the stipend she receives into an investment account that is paying an average annual return of 10% (similar to S&P 500 index). How much would Mary have at the end of the five years?
An insurance policy offers you the option of being paid $750 per month for 20 years or a lump sum of $50,000. Which has the greater value if the current rate of return is 4.5% compounded monthly and you expect to live for at least 20 years?
