Question

You just received a $5,000 gift from your grandmother. You have decided to save this money so that you can gift it to your grandchildren 50 years from now. How much additional money will you have to gift to your grandchildren if you can earn an average of 7.5 percent instead of just 7 percent on your savings?

Answer 1

Answer:

$38,663.61

Explanation:

Given:

Principle amount = $5,000

Duration, n = 50 years

Now,

With interest rate 7.5%

Future value = Principle × ( 1 + r )ⁿ

thus,

Future value = $5,000 × ( 1 + 0.075 )⁵⁰

or

Future value = $185,948.73

With interest rate 7%

Future value = Principle × ( 1 + r )ⁿ

thus,

Future value = $5,000 × ( 1 + 0.07 )⁵⁰

or

Future value = $147285.12

Hence,

The additional amount to be gifted = $147285.12 - $185,948.73

= $38,663.61