Answer:
a.) $217,298.44
b.) $253,514.84.
c.) $239,061.37 .
Explanation:
<u>a. Determine how much you will have saved after 10 years</u>
This is an ordinary annuity question and you are required to find the Future value (FV) at year 10. Using a financial calculator, key in the following inputs;
Total duration of investment; N = 10
Recurring payment; PMT = -15,000
Interest rate ; I/Y = 8%
PV = 0
then compute Future value; CPT FV = 217,298.437
Therefore, in 10 years, you will have saved $217,298.44 which does not meet your goal of half a million dollars.
<u>b. Determine the amount saved if you were able to deposit $17, 500 each year.</u>
With the recurring payment increasing to 17,500 per year and the interest rate remaining at 8%, find the new Future value by keying in the following inputs;
Recurring payment; PMT = - 17,500
Interest rate ; I/Y = 8%
Total duration of investment; N = 10
PV = 0
then compute Future value; CPT FV = 253,514.843
Therefore, in 10 years, you will have saved $253,514.84.
<u>c. Determine the amount saved if you deposit $15,000 each year, but with 10 percent interest.</u>
It is still an ordinary annuity question , however, the recurring payment(PMT) will be 15,000 as before but with an annual interest rate(I/Y) of 10%. Using a financial calculator, key in the following inputs;
Total duration of investment; N = 10
Recurring payment; PMT = -15,000
Interest rate ; I/Y = 10%
PV = 0
then compute Future value; CPT FV = 239,061.369
Therefore, in 10 years, you will have saved $239,061.37 .
